Customer
connected
Community
focused
2012–2013
Annual Financial Report
Contact us
Bendigo and Adelaide Bank Limited
ABN 11 068 049 178
Registered head office
The Bendigo Centre
22-44 Bath Lane
Bendigo VIC
Australia 3550
Telephone: 1300 361 911
Facsimile: 03 5485 7000
Customer Help Centre
1300 361 911 (local call)
8.30am to 7.30pm weekdays
Australian Eastern Standard Time/Australian
Eastern Daylight Time
Shareholder enquiries
Share Registry
1800 646 042
Email: share.register@bendigoadelaide.com.au
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Table of contents
Chairman’s message
Managing Director’s message
Review of operations and operating results
Group performance highlights
Analysis of Group performance
Overview of loan and deposit portfolios
Capital adequacy
Divisional performance
Directors’ report
Remuneration overview for FY2013
Remuneration Report
Corporate governance
Five year history
Five year comparison
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
Notes to the financial statements
1. Corporate information
2. Summary of significant accounting policies
3. Segment results
4. Profit
5. Cash earnings
6. Income tax expense
7. Capital management
8. Earnings per ordinary share
9. Dividends
10. Return on average ordinary equity
11. Net tangible assets per ordinary share
12. Cash flow statement reconciliation
13. Cash and cash equivalents
14. Financial assets held for trading
4
5
6
15
17
19
20
20
22
25
27
46
53
54
55
56
57
58
60
61
61
61
75
78
81
82
84
86
87
89
90
90
91
91
15. Financial assets available for sale - debt securities
16. Financial assets available for sale - equity investments
17. Financial assets held to maturity
18. Loans and other receivables
19. Impairment of loans and advances
20. Particulars in relation to controlled entities
21. Investments accounted for using the equity method
22. Property, plant and equipment
23. Assets held for sale
24. Investment property
25. Intangible assets and goodwill
26. Impairment testing of goodwill and intangibles
with indefinite lives
27. Other assets
28. Deposits
29. Other payables
30. Provisions
31. Reset preference shares
32. Convertible preference shares
33. Subordinated debt
34. Issued capital
35. Retained earnings and reserves
36. Employee benefits
37. Share based payment plans
38. Auditor’s remuneration
39. Key management personnel
40. Related party disclosures
41. Risk management
42. Financial instruments
43. Derivative financial instruments
44. Commitments and contingencies
45. Standby arrangements and uncommitted credit facilities
46. Fiduciary activities
47. Securitisation and transferred assets
48. Business combinations
49. Events after balance sheet date
Directors’ Declaration
Independent Auditor's Report
Additional information
92
92
93
94
95
96
98
101
103
103
104
107
108
109
110
110
112
112
112
113
115
117
118
123
124
130
133
146
156
159
163
163
163
164
164
165
166
168
3
Chairman’s
message
We are pleased to be able to report another strong performance by
Bendigo and Adelaide Bank for 2012–2013.
This result builds on the solid foundations laid over several
years as we have dealt with the broader implications of the
Global Financial Crisis. It also reflects the strength of the Bank’s
unique customer and community value proposition in these
subdued market conditions. We appreciate the support that our
customers and the communities in which we operate provide to
our business.
The Board was pleased to announce an increase in the final
dividend to 31 cents per share, a 3.3 percent increase on
the first half of the financial year. This increase took the full
year dividend to 61 cents per share. It reflects the Bank’s
strong capital position, improved earnings performance, and
our confidence in the outlook for Bendigo and Adelaide Bank,
despite expectations of subdued economic conditions in the
coming 12 months.
This strong, consistent performance comes from our low risk,
rigorous, common sense management of Bendigo and Adelaide
Bank. Today, our conservative funding and balance sheet
structure, and our highly engaged staff, place Bendigo and
Adelaide Bank in a good position to continue to grow and to
benefit from any improvement in market sentiment and demand
for credit.
We are now well-placed to move beyond our recent phase of
consolidation and transition to a more entrepreneurial period,
where we can take greater advantage of the opportunities in
the marketplace. We have never been better placed to evolve
and develop. As the fifth largest retail bank in Australia,
we are an increasingly significant player in the financial
services industry. We can be confident about our growing
profile and potential.
Following the retirement of Terry O’Dwyer in August 2012, we
welcomed Robert Hubbard to our Board. Rob joins the Board
with more than 20 years of experience in various accounting,
corporate finance, assurance, and audit roles. He is from
Queensland, which is an important area of business for
us. We look forward to his invaluable insights into running
large complex organisations with a national footprint in an
international marketplace.
Your Board has a diverse mix of skills, backgrounds,
geographies and experience, contributing to the strong,
purposeful development of the Bank. Five of the directors have
been on the Board for less than five years, each offering fresh
perspective and new ideas.
To retain our unique position in the marketplace, we must
continually adapt, grow and improve while remaining true
to our core values of placing customers and communities
first. We must keep responding to and anticipate the
demands of our customers and be an unapologetically 21st
century organisation. Our investments in Basel II Advanced
Accreditation and new digital and online technologies are an
integral part of this. We must ensure our business systems
and practices are constantly updated to support our people,
customers and communities.
On a more personal note, I have been delighted by how the
Bank’s scholarship program has grown in the six years since
we established it. From just one scholarship in 2007, it has
become one of Australia’s largest privately funded scholarship
programs. While these scholarships are just one of many
examples of how our Bank is investing in communities around
the country, I believe there is no better investment for all
our communities than giving young people the opportunity to
further their education.
I am very proud of some key milestones the Group has
celebrated this year, and I am excited about what the coming
year will bring. On behalf of the Board, thank you for your
continued support, and we look forward to a successful 2014.
Robert Johanson
Chairman
4
Managing
Director’s
message
The 2012–2013 financial year was typified by soft demand for credit, heightened competition for
retail deposits and fragile consumer confidence. It is therefore pleasing that we have been able
to produce a result that shows improvement in a range of profitability and efficiency measures –
including net profit, cash earnings, net interest margin, dividend and earnings per share, return on
equity and cost to income ratio.
We have been able to achieve this due to the fantastic support
of our shareholders, customers and the communities we
operate in, while maintaining a credit rating of at least “A-” from
all three ratings agencies.
Our strategy over the next three years is to build on the strong
foundations established for the business since the offset
of the Global Financial Crisis, and to capitalise on the many
opportunities available to us. Our family of brands ensures we
will continue to attract, serve and satisfy the varied needs of
our customers. Significant investments in Basel II Advanced
Accreditation and our new Adelaide premises will deliver
enormous benefits to our customers through increases in
productivity, efficiency and collaboration.
As a management team we must remain nimble and continue
to evolve in response to the ever-changing environment in
which we operate. Advances in technology add another layer
of uncertainty to the banking environment, through the rapid
introduction of new ways and models of doing business and
a fluid competitive landscape with aggressive new entrants
seeking market share growth in niche areas. We continue
to invest in the digital space, and are increasingly engaging
with our customers through social media channels. We are
currently developing a new online banking system, which will
initially be rolled out in mobile format, and we will soon be
relaunching www.bendigobank.com.au
Our customer-centric values, ability to innovate and a culture
of doing things differently have carved out a position for our
Bank that continues to be unique. From the many milestones
and achievements of the past year, there are some key
highlights we would like to share with you.
> Our Community Bank® model, which celebrated its
15th birthday, has now returned more than $100
million to communities across Australia
> Sandhurst Trustees, part of our Bank’s Wealth
division, celebrated 125 years since its formation
> The Community Sector Banking initiative celebrated
its first 10 years. From small beginnings, it now serves
more than 7,000 customers and has a $650 million
balance sheet
> The transition of more than 110,000 Adelaide Bank retail
customers onto the core Bendigo Bank retail platform was
successfully completed in April.
Our Bank is now well-placed to grow our connection with all
our South Australian customers
> In November we relaunched the Bank of Cyprus as
Delphi Bank. The new-look brand will continue to build
on the company’s strong connection to the Hellenic
community
> Investments in Community Telco® Australia and
HubIT, the company that developed the NoQ app,
continue to diversify our services and complement our
customer-connected vision
Your management team looks forward to continuing to
leverage our unique strengths to take advantage of the
significant opportunities that exist for our Bank. This in turn
drives our ability to continue to make a positive difference to
the communities in which we operate and the individuals and
businesses within them.
Mike Hirst
Managing Director
5
Review of operations
and operating results
This report provides an overview of the business structure,
operations, financial performance and position and future
prospects for Bendigo and Adelaide Bank Limited and its
operating subsidiaries (the Group).
About the Group
The Group operates solely in Australia and is a community
focussed retail bank that commenced operations in 1858.
Today’s business is, to a large degree, the result of the
successful merger of the antecedent businesses of Bendigo
Bank Limited and Adelaide Bank Limited in 2007.
Our business activities
The principal activities of the Group are the provision of
banking and other financial services including lending,
deposit taking, leasing finance, superannuation and funds
management, insurance, treasury and foreign exchange
services (including trade finance), financial advisory and
trustee services.
Our business model
The Group provides the above services primarily to retail
customers and small to medium sized businesses. The
business activities are primarily conducted through four
specific customer-facing business divisions – Retail Bank, Third
Party Banking, Bendigo Wealth and Rural Bank.
The Group’s customer facing brands are depicted in
the diagram below.
Retail Bank
The Retail banking business, operating under the ‘Bendigo
Bank’ brand, provides a full suite of traditional retail banking,
wealth and risk management services to retail customers via
our national network of more than 500 branches (company-
owned and Community Bank®), call centres, agencies and
online banking services.
6
The major revenue sources are net interest income from
traditional banking services (i.e. lending and taking deposits)
and fee income for the provision of services. The Group
shares revenue with the Community Bank® branch network.
Community Bank® is a franchise with the community owning
the rights to operate a Bendigo Bank branch. Essentially, a
locally owned public company invests in the rights to operate
a bank branch. The Group supplies all banking and back office
services while the community company operates the retail
outlet. Revenue is shared, enabling communities to earn
revenue from their own banking and channel this revenue back
into community enterprise and development.
Delphi Bank (formerly Bank of Cyprus Australia) is the division
which provides retail banking services to Greek and Cypriot
communities across New South Wales, Victoria and South
Australia. Delphi Bank is the largest banker of the Hellenic
community in Australia.
Third Party Banking
The Third Party Banking business includes the Adelaide Bank
branded business which distributes residential mortgage,
commercial and consumer finance through intermediaries,
including mortgage managers and brokers.
Third Party Banking also includes the Group’s portfolio funding
business which provides wholesale funding to third party
financiers in the commercial and consumer finance markets.
The major revenue sources are net interest income and
fees derived from the provision of residential, commercial,
consumer and business lending.
Bendigo Wealth
Bendigo Wealth is the Group’s wealth management division
providing margin lending, superannuation, managed
investments, traditional trustee services and financial
planning services through subsidiaries including Sandhurst
Trustees and Leveraged Equities.
The major revenue sources are fees, commissions and
interest from the provision of wealth management, margin
lending, wealth deposit, cash management and financial
planning products and services.
Rural Bank
Rural Bank is a wholly-owned subsidiary with a separate
banking licence. Rural Bank provides specialised banking
products and services to primary producers, agribusiness
participants and individuals or businesses seeking business
loans. Rural Bank products and services are available at
regional locations nationally including Bendigo Bank branches,
Elders Rural Services branches, selected Ray White Rural
agencies and two metropolitan Investment Centres in Adelaide
and Perth.
The major revenue source is net interest income and fees
predominantly derived from the provision of loans and
deposits to agribusiness, rural and regional Australian
communities.
Our Vision and Strategy
The Group’s strategy is built on the vision of being Australia’s
leading customer-connected Bank. The Group aims to achieve
this vision by focusing upon a number of key principles.
It is recognised that our strength comes from focussing on the
success of our customers, people, partners and communities.
For this reason:
a) We take a long term view of the business which
means that we make decisions that will generate
value for years to come. We will not be price
driven or willing to cut costs at the expense of
long term value;
b) We listen. With technology advancements and
high levels of competition, listening to what it is
our customers and partners want to achieve will
help us to tailor products and services to meet
their needs;
c) We respect every customer’s choice, needs
and objectives. We look to put our customers in
control of how they want to define their banking
relationship with us and how they want to deal
with us; and
d) We partner for sustainable long term outcomes.
We believe our success comes from our focus on the success
of others. If we do this we will be relevant, connected and
valued, with the benefits flowing to all of our stakeholders
including shareholders, customers, our people, partners and
the wider community.
With our industry leading customer satisfaction and brand
advocacy, we will continue to work to leverage this unique
positioning to deliver above system growth in both deposits
and housing lending.
Developments during the year
The consolidation of our office space in Adelaide is well
progressed. The construction of the new five-star green-star
building in the heart of Adelaide will affirm our commitment to our
staff, customers, partners and the South Australian community.
We expect to occupy the premises by the end of 2013.
The new building will accommodate more than 1,000 staff
currently based in four locations across Adelaide, and including
staff from the Bank’s wholly owned subsidiary, Rural Bank. The
new office will also feature an innovative flagship branch.
In December 2012, we announced that we had entered into an
agreement to acquire the loan book and other assets totalling
approximately $290 million from Warrnambool based Southern
Finance with the purchase proceeds used to repay Southern
Finance noteholders.
In May this year, we also announced the signing of an
agreement with Benalla based H.D & C Securities Limited
to acquire the loan book of H.D. & C Securities totalling
approximately $50 million.
These transactions have further strengthened our connection
with these regions and positioned the Group to support these
customers with an exceptional product and service offering.
In November 2012, we successfully completed the issue of
convertible preference shares (CPS) and raised a total of
approximately $270 million of new Tier 1 hybrid capital.
We also successfully completed the redemption of the Reset
Preference Shares (RPS) in November 2012.
In February 2013, we announced the issue of $850 million of
mortgage backed securities under the Torrens securitisation
program and in June 2013 we announced the issue of further
mortgage backed securities totalling $500 million under the
same program. In addition to the significant funding provided,
these transactions also provide capital management benefits
to the Group.
In April 2013, we successfully transitioned more than
110,000 Adelaide Bank customers onto the core Bendigo
Bank retail platform. This was a significant project for us and
we believe it will greatly assist us in building a stronger and
more sustainable retail business in South Australia.
Challenges and opportunities
The operating environment for the coming year is again
expected to be very challenging. However, we believe we are
well positioned for continued growth given our distinctive
offering and unique market positioning, the significant
investment into systems and the distribution network and our
long history of trusted service.
We intend to continue to invest in our business to further
understand the needs and aspirations of customers through
additional development of our customer management
platforms and by connecting with customers through social
media forums and emerging technologies.
Challenges
Continuation of the low credit growth environment
It is expected that the sector will continue to experience
relatively subdued credit growth and this should in turn drive
strong competition as financial institutions compete for the
limited demand for credit.
We believe that the low demand for credit will again make
growth in interest revenue challenging. In addition, a large
percentage of our borrowers are making loan repayments
ahead of their minimum contractual obligations. However,
we are well placed to generate above system credit growth
given the relative immaturity of the retail network, our market
positioning and our value proposition.
Continued strong competition for deposits
Whilst we moved early to complete the restructuring of our
balance sheet, it will be important that we remain competitive
in the pricing of term deposits. Higher demand for retail
deposit funding, combined with low absolute interest rates,
is again expected to continue to squeeze the margins of all
banks, including our own.
7
Annual Financial Report Period ending 30 June 2013 We will again commence the new financial year with a very
strong funding profile. The level of deposit funding, in the
order of 78 percent of our overall funding mix, places us in an
enviable position. In addition, wholesale funding markets have
improved and our conservative funding profile should enable
us to access these markets where economically sensible to
do so. For example, this year we successfully completed two
mortgage-backed security issues and two unsecured senior
debt issuances.
Advanced Accreditation project
We have initiated a project to become accredited under the
Australian Prudential Regulation Authority’s (APRA) advanced
capital measurement model (Basel II). This will be a major
project for us over the next few years. Whilst the investment
in this project is expected to generate significant long-term
benefits for all stakeholders, including improving our ability to
meet our customers’ needs, the project will require significant
resource allocation and investment in both systems and new
skills. We invested in the order of $12.5 million in this project
for the 2013 financial year.
Regulatory change
The Group is subject to significant regulatory oversight. It is
regulated by APRA, the Reserve Bank (RBA), the Australian
Securities Exchange (ASX), the Australian Securities and
Investments Commission (ASIC), the Australian Competition
and Consumer Commission and Australian Transaction
Reports and Analysis Centre amongst others.
Regulation of the banking and financial services sector is
becoming increasingly complex and extensive. Some of the
more significant changes that we will need to incorporate
into our business structures include completing the
implementation of the new minimum liquidity risk management
standards and capital requirements under the Basel III
reforms.
Other reforms that will impact our business include the new
regulations relating to remuneration, the foreign account tax
compliance act, tighter anti-money laundering and counter-
terrorism financing rules, the future of financial advice
reforms, stronger privacy protections, over-the-counter
derivatives reforms and stronger governance regulations
around superannuation.
Opportunities
Our core focus will continue to be understanding the needs
and objectives of our customers. Customer behaviour and
insight drives a lot of what we do and our Customer Led
Connections team will coordinate the response to changes in
customer behaviour and expectations.
Increasing the level of business activity and engagement with
customers will also be a major focus. This opportunity goes
directly to our point of difference. There will be continued
investment in our community and partner based activities,
increasing awareness of the benefits of our banking model
and deepening relationships with customers.
8
Making it easier for customers to do business with us will
continue to be a key priority for the business. Structures have
been implemented to identify system and process changes to
make it simpler and easier for customers to bank with us.
We will continue to invest in our online, mobile and social
media strategies through a number of activities. This
investment will help the Group grow our connection to our
customers utilising social media networks and making
improvements to the mobile application as well as the internet
banking platform and website.
Another investment that will support the strategy relates to
the Bendigo Wealth business. This investment is focussed on
enabling us to meet all of our customers’ financial requirements,
and we are committed to delivering a meaningful offering of
specialist products and services. Our offering will be further
expanded with the newly launched SmartStart Super Pension
Accounts and MySuper product for employee customers.
Other opportunities include:
Network maturity and growth
The relative immaturity of our distribution network is considered
to be a significant platform for growth. The Group now has more
than 500 branches across Australia and almost one hundred of
these have been operating for less than five years.
The expansion and immaturity of the retail network is evidence
of our commitment to our customers and their communities
and it is expected that this investment will generate significant
growth opportunities for us in years to come.
Funding tenure and diversity
The Group operates with a conservative funding structure and
retail deposits continue to make up approximately 78 percent
of the total funding.
As demonstrated over recent years, funding markets can go
through periods of significant disruption. More recently, the
improvements in these markets have been welcomed by all
participants.
As a result we have been able to access wholesale funding in
both senior unsecured formats as well as secured residential
mortgage backed securitisation funding. These transactions
have provided the Group with new investors as well as an
extension of the Group’s funding profile.
With the success of these transactions and the heightened
awareness of the Group’s business model and improved credit
rating, more opportunities are likely to arise to further diversify
the investor base and potentially lengthen the term debt profile
where economically sensible.
Efficiency gains
Continuous Improvement, driven by a developing improvement
culture that predominantly uses LEAN techniques, is the
centrepiece of our desire to make it easier for customers to do
business with us and to deliver further operational efficiencies
and cost savings.
It is through this process that we will strive to improve our
service delivery, grow our customer business and improve our
efficiency by doing more things within the existing cost base.
Banking and telco convergence
We will continue to progress the banking and telco convergence
project. As part of this project the Group is rethinking
its online banking service as well as making additional
investment into technology that will allow customers to define
how and when they deal with the Group.
The digital strategy, of which these initiatives are a part, is
principally being driven out of our Customer Led Connections
team. This is an exciting area of development and crosses online
product and service delivery channels, payments systems,
telecommunications and social media.
Leverage customer and staff engagement
In addition to the Group’s industry-leading customer
satisfaction levels, the organisation has staff engagement
levels which are above the Australian high-performance
benchmark. There are significant advantages for an
organisation that has engaged staff and the organisation will
continue to use these strengths to the best advantage.
Consolidation opportunities
The organisation has an established record of successfully
acquiring businesses that add shareholder value. The highly
competitive environment, the regulatory burden and the
pace of technological change is expected to result in more
consolidation across the industry. We are well placed to take
advantage of opportunities that may arise.
Looking forward
Our focus for the year ahead will be on executing and
capitalising on the many opportunities before us. More
specifically our businesses will:
> Look to gain a better understanding of the needs,
wants and behaviours of customers by tapping
into their “Customer Voice” and translating this
into increased business from a more engaged and
connected customer base.
> Continue to drive above system growth in residential,
business and agribusiness lending by building on the
current momentum.
> Draw more customers to www.bendigobank.com.au
through the delivery of an improved website
experience.
> Establish a new and ground breaking online banking
experience for our customers.
> Improve the experience for our third party lending
customers through the launch of a new and more
robust online banking site for Third Party lenders.
> Relaunch our mortgage broker business with a
renewed focus and call to action.
> Invest in our margin lending business and position
the business for a future turnaround in the share
market and investor confidence.
> Start to realise the opportunities and benefits
from our ‘convergence strategy’ that involves the
amalgamation of banking, telecommunications and
payment services.
> Further develop our wealth proposition with a specific
emphasis on lifting our presence in the growing
superannuation market.
And just as importantly, we will continue to test and challenge
everything we do to ensure we are operating as efficiently as
possible.
Credit Ratings
The Bank’s credit ratings at the date of this report are:
Short Term
Long Term
Outlook
Standard & Poor’s
Fitch Ratings
Moody’s
A-2
F2
P-1
A-
A-
A2
Stable
Stable
Stable
Prudential Regulation
APRA is the prudential regulator of the Australian financial
services industry. The Bank is regulated by APRA because of
its status as an Authorised Deposit-taking Institution (ADI).
Rural Bank is also regulated by APRA because of its ADI
status.
APRA’s Prudential Standards aim to ensure that ADI’s remain
adequately capitalised to support the risks associated with
their activities and to generally protect Australian depositors.
The Bank must currently comply with Basel II which is
the common name for a framework issued by the Basel
Committee on Banking Supervision (Basel Committee) for the
calculation of capital adequacy for banks globally.
The objective of the Basel II framework is to develop capital
requirements that are more accurately aligned with the
individual risk profile of banks. The Basel II framework is
based on three “pillars”:
> Pillar one covers the capital requirements
for banks;
> Pillar two covers the supervisory review process;
and
> Pillar three relates to market disclosure.
There are two capital measurement approaches under
this framework, being the standardised approach and
the advanced approach. The Bank is regulated under the
standardised approach and has implemented a major project
to move to the advanced approach.
Basel III
The Basel Committee released in 2010 a series of consultation
papers which propose changes to the Basel II framework (Basel
III). The aim of the Basel III proposals is to strengthen global
capital and liquidity framework and to improve the banking
sector’s ability to absorb shocks arising from financial and
economic stress.
The consultation papers aim to increase the quality, quantity,
consistency and transparency of banks’ capital bases, while
strengthening the risk coverage of the capital framework.
On 28 September 2012, APRA released the final Basel III
capital reform package for Australia. The major reforms are to
be phased in from 1 January 2013 to 1 January 2019. However,
recognising that ADIs in Australia are starting from a sound and
strongly capitalised position, APRA has accelerated the Basel III
timetable in some areas.
The new Basel III minimum capital requirements commenced
1 January 2013 for Australian ADIs. The Group adopted the
Basel III measurement and monitoring of regulatory capital
from this date as required by APRA.
Bendigo and Adelaide Bank publishes information required
under APRA Prudential Standard 330 on its website. This
information can be found at:
9
http://www.bendigoadelaide.com.au/public/shareholders/
announcements/aps_330.asp
Annual Financial Report Period ending 30 June 2013 Our capital strategy
The Group seeks to maintain a conservative and prudent
capital base that adequately supports the risks being taken
through the normal operation of the business. This includes
providing for effective and efficient capital buffers to protect
depositors and investors, and allowing the business to grow.
The capital management strategy also plans and manages
for changes in business conditions, through normal business
cycles, regulatory and legislative change and through mergers
and acquisitions.
The capital management strategy is designed to ensure that
minimum capital standards are met, and that management
is afforded the greatest flexibility in pursuing its business
objectives.
Our liquidity and funding strategy
The principal source of funding for the Group is, and is expected
to continue to be, its retail deposit base. These deposits are
traditional term and savings deposits sourced predominantly
through the Group’s retail network. Retail deposits provide
a stable source of funding and the Group is committed to
maintaining a strong retail liability base.
The Group’s funding strategy is to maintain the existing high
levels of retail funding on balance sheet. In addition, we have
set the following funding objectives:
(a) lengthening the duration of our liabilities;
(b) continuing to diversify our funding opportunities across a
range of markets; and
(c) being an active participant in markets where funding
opportunities exist and pricing is appropriate.
Securitisation has also formed an important part of the
Group’s funding and capital management strategies and we
will continue to monitor this market and participate where
pricing is appropriate.
Our risk management framework
The financial prospects of any company are sensitive to the
underlying characteristics of its business and the nature
and extent of the commercial risks to which the company is
exposed.
There are a number of risks faced by the Group, including
those which encompass a broad range of economic and
commercial risks. However, the most common risks that the
Group actively manages are credit risk, interest rate risk,
liquidity risk and operational risk (including fraud, theft and
property damage).
10
Further information on the key financial risks is presented in
the Notes to the Financial Statements.
Overview of risk management
The Board is responsible for overseeing the establishment,
implementation, review and monitoring of risk management
systems, policies and internal controls to manage material risks.
The directors have adopted policies and procedures to
control exposures to, and limit the extent of, these risks.
These policies are overseen by Board committees. It is the
responsibility of executive management to implement the
policies and controls.
The Group has established a system of regular reporting from
independent risk (credit, operational, market and liquidity)
and audit functions to management and Board committees on
the implementation, operation and effectiveness of the risk
management systems, policies and internal controls designed
to manage risk.
The Group’s approach to managing risk uses three lines
of defence. The first line of defence is the business itself.
The operational and business management teams have
the primary responsibility for identifying and managing risk,
implementing controls and monitoring their effectiveness.
The second line of defence is primarily our Group Risk function
that provides specialist assistance to the business to monitor
and manage risks.
The third line of defence is Group Assurance. Through
completion of reviews outlined in the Group Assurance
strategic plan, assessments are made to determine whether
the Group’s network of risk management, control, and
governance processes, as designed and represented by
management, is adequate and functioning effectively.
Risk appetite
The management of risk is an essential element of the Group’s
strategy and operations. The Group’s overall risk management
strategy is based on a risk appetite approved by the Board. This
risk appetite for the key categories of risk are articulated in a
Board approved risk appetite statement.
The Group’s risk appetite statement is reviewed, updated and
approved annually by the Board. All supporting policies, limits,
tolerances and internal controls are updated to reflect the risk
appetite statement. All material risks are therefore managed
within the defined risk appetite.
The categories of risk where risk appetite and tolerances are
set include:
1. Interest rate risk
2. Funding and liquidity risk
3. Credit risk
4. Operational risk
5. Strategic risk
6. Taxation risk
The setting of Group Risk appetite and tolerance limits
within each of the categories above is assessed against the
approved set of Group strategic objectives.
Risk limits
Risk limits for market risk, credit risk and capital at risk
are set and monitored by the appropriate management
committees within the parameters approved by the Board.
The management of operational risk is performed using
qualitative self assessment.
The risk limits are based upon the level of capital (which may
be in the form of net interest income, net profit before or after
tax, retained earnings, market value of equity or other key
performance indicators) the Board is willing to place at risk.
The risk limits are calculated by aggregating quantifiable
measures of market, credit and operational risk. Prior to
approval by the Board, limits are formally reviewed on a regular
basis by the appropriate management and Board committees,
and take into account changes in market conditions, strategy
or the Group Risk function.
Risk management functions
Group Risk
The Group’s Executive Risk, heads up the Group Risk function
which is an independent function, providing the frameworks,
policies and procedures to assist the Group in managing credit
and operational risk.
The Credit Risk function is responsible for reviewing portfolio
credit quality, policy development and dissemination, credit
policy compliance, the assessment of large/maximum
credit proposals and manages the performance of the credit
management system at the Group level.
The Group’s Operational Risk function is responsible for
providing the frameworks, tools and support to assist the
business in the management of its operational risk (including
regulatory compliance, business continuity, financial crimes
and dealings through partners).
Group Treasury
Functional units are established within the finance and
treasury division that are responsible for monitoring and
reporting in relation to capital management, financial markets,
securitisation, liquidity and balance sheet management.
An independent middle office function, reporting directly to
the Chief Financial Officer, is responsible for reporting and
monitoring of market risk and oversees, supports and reports
on the market risk activities of group treasury and financial
markets to the Asset and Liability Management Committee and
Board Risk Committee.
Group Assurance
The Group has an independent Group Assurance function
reporting to the Board Audit Committee. The Group Assurance
responsibilities include:
1. Providing an assessment on the adequacy and
effectiveness of the Group’s processes for controlling
its activities and managing its risks; and
2. Reporting significant issues related to the processes
for controlling the activities of the Group, including
potential improvements to those processes, and
confirming resolution.
The Group Assurance function also reports to the Board Credit
Committee on items arising from credit risk reviews.
Summary of key risk factors and uncertainties
Dependence on prevailing macro-economic conditions
The Group’s revenues and earnings are dependent on
economic activity and the level of financial services its
customers require. In particular, lending is dependent on
customer and investor confidence, the state of the economy,
the residential lending market and prevailing market interest
rates. These factors are, in turn, impacted by both domestic
and international economic and political events, natural
disasters and the general state of the global economy.
The ongoing global uncertainty continues to impact global
economic activity and create high levels of uncertainty and
volatility. This continues to adversely impact economic growth,
credit growth and consumer and business confidence. A future
downturn in the Australian economy could adversely impact the
Group’s results of operations, liquidity, capital resources and
financial condition.
Geopolitical instability, such as threats of, potential for,
or actual conflict, occurring around the world may also
adversely affect global financial markets, general economic
and business conditions and, in turn, the Group’s business,
operations and financial condition.
The Group also has an exposure to the rural sector. The
performance of this sector is impacted by national weather
patterns and commodity price movements which in-turn may
impact group earnings.
Natural disasters such as (but not restricted to) cyclones,
floods and earthquakes, and the economic and financial
market implications of such disasters on domestic and
global conditions can adversely affect the Group’s business,
operations and financial condition.
Competition
The markets in which the Group operates are highly
competitive and could become even more so, particularly in
those segments that are considered to provide higher growth
prospects or are in greatest demand (for example, customer
deposits).
Factors that contribute to competition risk include industry
regulation, mergers and acquisitions, changes in customers’
needs and preferences, entry of new participants, development
of new distribution and service methods, increased diversification
of products by competitors, and regulatory changes in the rules
governing the operations of banks and non-bank competitors.
Increasing competition for customers could also potentially
lead to a compression in the Group’s net interest margins,
or increased advertising and related expenses to attract and
retain customers.
Additionally, measures by the Australian Government
designed to further promote competitive and sustainable
banking system in Australia could have the effect of limiting
or reducing the Group’s revenue earned from its banking
products or operations.
The effect of competitive market conditions, especially in the
Group’s main markets, may lead to erosion in the Group’s
market share or margins, and adversely affect the Group’s
business, operations, and financial condition.
11
Annual Financial Report Period ending 30 June 2013 Change to credit ratings
The Bank’s credit ratings have a significant impact on both its
access to, and cost of, capital and wholesale funding.
Credit ratings may be withdrawn, made subject to
qualifications, revised, or suspended by the relevant credit
rating agency at any time and the methodologies by which they
are determined may be revised.
A downgrade or potential downgrade to the Bank’s credit
rating may reduce access to capital and wholesale debt
markets, potentially leading to an increase in funding costs, as
well as affecting the willingness of counterparties to transact
with it.
Significant slowdown in the Australian
real estate market
Residential, commercial and rural property lending, together
with property finance, including real estate development and
investment property finance, constitute important businesses
to the Group. Overall, the performance of the property market
has been variable and in some locations there have been
substantially reduced asset values.
A decrease in property valuations in Australia could decrease
the amount of new lending the Group is able to write and/
or increase the losses that the Group may experience from
existing loans, which, in either case, could materially and
adversely impact the Group’s financial condition and results of
operations.
A significant slowdown in the Australian real estate market
could adversely affect the Group’s business, operations and
financial conditions.
Risk management
Credit risk
Credit risk is the risk of financial loss due to the unwillingness
or inability of a counterparty to fully meet their contractual
debts and obligations.
Business or economic conditions, whether generally or in a
specific industry sector or geographic region, could cause
customers to experience an adverse financial situation,
thereby exposing the Group to the increased risk that those
customers will fail to meet their obligations in accordance with
agreed terms.
The Group is exposed to the potential risk of credit-related
losses that can occur as a result of a counterparty being
unable or unwilling to honour its contractual obligations. As
with any financial services organisation, the Group assumes
counterparty risk in connection with its lending, trading,
derivatives and other businesses where it relies on the ability
of a third party to satisfy its financial obligations to the Group
on a timely basis.
Credit exposure may also be increased by a number of
factors including deterioration in the financial condition of the
counterparty, the value of assets the Group holds as collateral
and the market value of the counterparty instruments and
obligations it holds.
12
Should material unexpected credit losses occur to the Group’s
credit exposures, it could have an adverse effect on the
Group’s business, operations and financial conditions.
Credit risk is primarily monitored by the Board Credit
Committee and the Management Credit Committee and the
framework, policies, analysis and reporting are managed by
the Group’s Credit Risk unit.
Market risk
Market risk (which includes interest rate risk and currency risk)
is the risk of loss arising from changes and fluctuations in
interest rates, foreign currency exchange rates, equity prices
and indices, commodity prices, debt securities prices, credit
spreads and other market rates and prices.
Changes in investment markets, including changes in
interest rates, foreign currency exchange rates and returns
from equity, property and other investments, will affect the
financial performance of the Group through its operations
and investments held in financial services and associated
businesses. Losses arising from these risks may have an
adverse impact on the Group’s earnings.
Market risk is primarily monitored through the Board Risk
Committee and managed through the Asset and Liability
Management Committee.
Liquidity and funding risk
Liquidity risk is the risk that the Group is unable to meet
its payment obligations as they fall due, including repaying
depositors or maturing wholesale debt, or that the Group has
insufficient capacity to fund increases in assets. Liquidity
risk is inherent in all banking operations due to the timing
mismatch between cash inflows and cash outflows.
Reduced liquidity could lead to an increase in the cost of the
Group’s borrowings and possibly constrain the volume of new
lending, which could adversely affect the Group’s profitability.
A significant deterioration in investor confidence in the Group
could materially impact the Group’s cost of borrowings, and
the Group’s ongoing operations and funding.
The Group raises funding from a variety of sources including
customer deposits and wholesale funding in Australia and
offshore markets to ensure that it continues to meet its funding
obligations and to maintain or grow its business generally.
Group Treasury is responsible for implementing liquidity
risk management strategies in accordance with approved
policies and adherence is monitored by the Asset and Liability
Management Committee and the Board Risk Committee. This
includes maintaining prudent levels of liquid reserves and a
diverse range of funding options to meet daily, short-term and
long-term liquidity requirements.
Liquidity scenarios are calculated under stressed and normal
operating conditions to assist in anticipating cash flow needs
and providing adequate reserves. The Group maintains a
portfolio of high quality assets that can be liquidated and
readily converted to cash in the event of an unforeseen
interruption of cash flow.
The Group also maintains a significant amount of contingent
liquidity in the form of internal securitisation whereby
the collateral can be presented to the RBA for cash in
extraordinary circumstances such as systemic liquidity issues.
The liquidity position is assessed and managed under a
stressed name specific scenario as well as under going
concern conditions.
The most important of these is to maintain limits on the
ratio of net liquid assets to customer liabilities, set to reflect
market conditions.
Net liquid assets consist of cash, short term bank deposits and
liquid debt securities available for immediate sale, less deposits
and other issued securities and borrowings due to mature within
the next month.
Operational risk
As a financial services organisation, the Group is exposed to
a variety of risks, including those resulting from process error,
fraud, information technology instability and failure, system
failure and matters relating to security and physical protection,
customer services, staff skills and performance, and product
development and maintenance.
Operational risk can directly impact the Group’s reputation
and result in financial losses which could adversely affect its
financial performance or financial condition.
Operational risk (other than financial reporting risk) is primarily
monitored by the Board Risk Committee, supported by a
Management Operational Risk Committee.
The business is responsible for managing operational risk with
the assistance of the Group Operational Risk unit.
Operational risk is governed by the Group Operational Risk
framework. The framework complies with Basel II (operational
risk management) and Australian Standard – AS/NZS
4360:2004 (risk management).
Examples of operational risk events by category include:
> Internal and external fraud;
> Products and business practices;
> Business disruption and system failure;
> Employment practices and workplace safety;
> Damage to physical assets; and
> Execution, delivery and process management.
The Board Audit Committee has primary responsibility for the
oversight of financial reporting risk.
Information security risk
Information security means protecting information and
information systems from unauthorised access, use,
disclosure, disruption, modification, perusal, inspection,
recording or destruction. By its nature, the Group handles a
considerable amount of personal and confidential information
about its customers and its own internal operations.
The Group employs a team of information security experts
who are responsible for the development and implementation
of the Group’s information security policies. The Group is
conscious that threats to information security are continuously
evolving and as such conducts regular internal and external
reviews to ensure new threats are identified, evolving risks
are mitigated, policies and procedures are updated and good
practice is maintained.
However, there is a risk that information may be inadvertently
or inappropriately accessed or distributed or illegally accessed
or stolen. Any unauthorised use of confidential information
could potentially result in breaches of privacy laws, regulatory
sanctions, legal action and claims of compensation or erosion
to the Group’s competitive market position, which could
adversely affect its financial position and reputation.
Information security governance has been aligned to the
responsibilities of the Operational Risk Committee. The
committee serves a key governance mechanism and is also
instrumental in achieving modification of organisational
behaviour toward a culture conducive to sound information
security and risk management.
An information security policy and standards framework is
in place which defines business requirements for security
translated into a logical structure that can be consistently
applied, monitored and measured. The policy and standards
set the requirements for good practice and the risk posture
that the business is willing to accept.
Reputation risk
Reputation risk may arise as a result of an external event or
the Group’s own actions, and adversely affect perceptions
about the Group held by the public (including Group customers),
shareholders, investors, regulators or rating agencies.
The impact of a risk event on the Group’s reputation may
exceed any direct cost of the risk event itself and may
adversely impact the Group’s earnings, capital adequacy or
value. Accordingly, damage to the Group’s reputation may
have wide-ranging impacts, including adverse effects on
its profitability, capacity and cost of sourcing funding, and
availability of new business opportunities.
Regulatory changes or a failure to comply
with regulatory standards, law or policies
The Group is subject to laws, regulations, policies and
codes of practice in countries in which it has operations,
trades or raises funds or in respect of which it has some
other connection. In particular, the Group’s banking, funds
management and superannuation activities are subject to
extensive regulation, mainly relating to its liquidity levels,
capital, solvency, provisioning and licensing conditions.
Regulations vary from country to country but generally are
designed to protect depositors, customers with other banking
products and the banking system as a whole.
The Australian Government and its agencies, including APRA,
the RBA and other regulatory bodies including ASIC, have
supervisory oversight of the Group.
A failure to comply with any standards, laws, regulation or
policies in any other of those jurisdictions could result in
sanctions by these or other regulatory agencies, the exercise
of any discretionary powers that the regulators hold or
compensatory action by affected persons, which may in turn
cause substantial damage to the Group’s reputation. To the
extent that these regulatory requirements limited the Group’s
operations or flexibility, they could adversely impact its
profitability and prospects.
These regulatory and other governmental agencies (including
revenue and tax authorities) frequently review banking
and tax laws, regulations, codes of practice and policies.
Changes to laws, regulations, codes of practice or policies,
including changes in interpretation or implementation of laws,
regulations, codes of practices or policies, could affect the
Group in substantial and unpredictable ways.
These may include increasing required levels of bank liquidity
and capital adequacy, limiting the types of financial services
and products the Group can offer and/or increasing the ability
of non-banks to offer competing financial services or products,
as well as changes to accounting standards, taxation laws and
prudential requirements.
Any such changes may adversely affect the Group’s business,
operations and financial condition. The changes may lead
the Group to, among other things, change its business mix,
incur additional costs as a result of increased management
attention, raise additional amounts of higher quality capital
(such as ordinary shares) and hold significant levels of
additional liquid assets and undertake additional long-term
wholesale funding to replace short-term wholesale funding to
more closely match the Group’s asset maturity profile.
The Group has established a framework of policies and
procedures and monitoring and reporting structures to manage
compliance risk. The regulatory compliance function, within
the Group’s operational risk unit, monitors compliance with
approved policies, procedures and requirements. The Board
Risk Committee and Management Operational Risk Committee
has responsibility for monitoring compliance risk.
13
Annual Financial Report Period ending 30 June 2013 Fraud
The Group is exposed to the risk of fraud, both internal and
external. Financial crime is an inherent risk within financial
services, given the ability for employees and external parties
to obtain advantage for themselves or others.
In addition, the Group must update and implement new
information technology systems, in part to assist it to satisfy
regulatory demands, ensure information security, enhance
computer-based banking services for the Group’s customers
and integrate the various segments of its business.
The Group may not implement these projects effectively
or execute them efficiently, which could lead to increased
project costs, delays in the ability to comply with regulatory
requirements, failure of the Group’s information security controls
or a decrease in the Group’s ability to service its customers.
The Group has implemented a control framework to manage
this risk. The framework includes our enterprise change
process, business impact analysis and prioritisation
processes, technology infrastructure monitoring, application
software maintenance and business system portfolio
management structures. The framework is monitored by the
Board Technology and Change Committee.
Litigation risks in relation to the
Great Southern loan portfolio
A specific litigation risk exists in relation to the Group’s Great
Southern loan portfolio.
A law firm commenced a number of group legal proceedings
involving the Group and other parties on behalf of investors in
relation to managed investment schemes managed by Great
Southern Managers Australia Ltd (Group Proceedings). The
Great Southern Group of companies is now in liquidation.
The Group either acquired or advanced loans to investors in
the managed investment schemes.
Not all borrowers are members of the Group Proceedings
as the Group Proceedings relate to specific schemes and
categories of borrowers.
While no wrongdoing is alleged against the Group, the law
firm is seeking to have the loan deeds of those borrowers
who are members of the Group Proceedings deemed
void or unenforceable and for all money paid under those
loans (including principal, interest and fees) to be repaid
to borrowers. The Group is vigorously defending the Group
Proceedings.
The adequacy of loan provisions in relation to the Great
Southern loan portfolio are regularly reviewed having regard to
the performance of the portfolio and other relevant factors.
The inherent risk also exists due to systems of internal
controls failing to prevent or detect all instances of fraud,
particularly if fraud is committed by persons in collusion or
people in positions of trust, who intentionally over-ride control
systems in order to misappropriate funds.
There is a risk of intentional actions by Group employees in
order to gain an advantage from the Group or related third
parties (for example stealing assets and/or information) and a
risk of persons external to the Group dishonestly obtaining a
benefit, financial or otherwise or causing a loss, by deception
or other means.
The Group has established a control framework of policies,
procedures, monitoring and reporting and organisational
structures to manage fraud risk.
All actual or alleged fraud is investigated under the authority of
the Group’s Financial Crimes unit to:
1. Identify and take action against the offender/s of
fraud;
2. Minimise the impact of any losses on the Group
and where possible recover funds;
3. Identify and rectify deficiencies in processes and
controls as well as analyse trends that enable the
Group to minimise losses; and
4. Utilise the information obtained to assist in
analysis and training.
Disruption of information technology systems or failure
to successfully implement new technology systems
The Group is highly dependent on information systems and
technology and there is a risk that these, or the services the
Group uses or is dependent upon, might fail.
Most of the Group’s daily operations are computer-based and
information technology systems are essential to the day-to-
day provision of banking services. The exposure to systems
risks includes the complete or partial failure of information
technology systems or data centre infrastructure, the
inadequacy of internal and third-party information technology
systems due to, among other things, failure to keep pace
with industry developments and the capacity of the existing
systems to effectively accommodate growth and integrate
existing and future acquisitions and alliances.
To manage these risks, the Group has robust disaster recovery
and information technology governance structures in place.
However, any failure of these systems could result in business
interruption, loss of customers, financial compensation,
damage to reputation and/or a weakening of the Group’s
competitive position, which could adversely impact the
Group’s business and have a material adverse effect on the
Group’s financial condition and operations.
14
Group performance
highlights
The Group has announced an after tax
statutory profit of $352.3 million for the year
ended 30 June 2013. The cash earnings
performance is discussed at the Analysis of
Group performance section of this report.
The statutory earnings per ordinary share is 84.9 cents
(FY2012: 48.6 cents), an increase of 74.7 percent, and the
statutory return on average ordinary equity is 8.52 percent
(FY2012: 4.84%).
The performance represented a solid result in difficult trading
conditions with consumer confidence and demand for credit
remaining low and competition for retail deposits remaining
very high.
The result included improvements in a range of profitability
and efficiency measures including net profit, cash earnings,
net interest margin, dividend, earnings per share, return on
equity and cost to income ratio.
The Group’s expenses before specific items increased by
3.6 percent to $779.0 million (FY2012: $751.7 million) and
the cost to income ratio was 57.0 percent compared to 59.1
percent at June 2012.
The improvement in other expenses, compared to the previous
financial year, was mainly due to the inclusion of the $95.1
million goodwill write-off for the margin lending business in the
2012 financial year.
The Group continues to invest in its distribution footprint and
capability. This, combined with industry leading customer
satisfaction and brand advocacy, has allowed the business to
grow total lending at an annualised rate of 4.8 percent over
the past twelve months. This compares favourably with system
growth of just 3.4 percent over the same period.
The Group reported its third consecutive six-monthly
improvement in its cost to income ratio. The Group continues
to grow revenues faster than costs, with revenue growing at
3.5 percent for the second half of FY2013 compared to 0.4
percent reduction in costs in the first half.
The Group continues to enjoy the strong support of its
customers and of the communities it operates in. This has
again been reflected in above-system asset growth across a
range of portfolios.
However, the Group expects an increase in costs during the
2014 financial year as the Basel II Advanced Accreditation
project continues and we open our new premises for
approximately 1,000 staff in Adelaide.
The business operates with a conservative funding and balance
sheet structure and highly engaged staff. Together these
factors place the Group in an ideal position to benefit from any
improvement in market sentiment and demand for credit.
2013 statutory earnings movement for year ($m)
81.8
37.5
61.4
19.2
4.1
352.3
77.4
3.6
1.1
195.0
June 12
Full year
NII
Fee
income
Comm
income
Other
income
Staff
costs
Other
exps
B & DD
Tax
Decrease
June 13
Full year
Increase
Business performance
Net interest income increased by 8.1 percent to $1,027.5
million (FY2012: $950.1 million). The net interest margin
continues to come under pressure from a combination
of strong competition for retail deposits and the natural
compression caused by low official cash rates.
Despite this the Group managed to increase net interest
margin to 2.21 percent for the year, an increase of 10 basis
points on the prior year.
Non-interest income before specific items was $297.2 million
(FY2012: $275.8 million), an increase of 7.8 percent.
The Group’s bad and doubtful debts expense was $69.9
million (FY2012: $32.4 million), an increase of 115.7 percent.
Credit quality
Credit costs continue to be impacted by seasonal and trade
disruptions to the north Queensland cattle sector, and an
increase in the number of bankruptcies from investors in the
portfolio of Great Southern managed investment schemes.
Despite this, 90-day arrears rates in our residential, business,
consumer and Rural Bank portfolios are all better than at the
same period last year, and this augers well for the coming
financial year.
Capital
There was a material improvement in capital ratios over the
period, with Core Tier 1 increasing 9 basis points to 7.82
percent, Tier 1 capital up 86 basis points to 9.25 percent and
total capital up 30 basis points to 10.71 percent.
Under Standard & Poor’s ratings methodology the Group’s risk
adjusted capital ratio is 11.5 percent, which is more than 25
percent higher than any of the four major Australian banks.
Funding
While retail deposits continue to make-up approximately
78 percent of total funding, there has been a material
improvement in the cost and availability of wholesale funding
options for the Group.
This was evidenced by two successful senior unsecured
wholesale funding offers during the year, including the first
senior unsecured raising by the Group since the Global
Financial Crisis.
The Group also successfully completed two residential
mortgage backed securities (RMBS) issues. The RMBS were
both priced at the tightest margins since the start of the
Global Financial Crisis.
15
Annual Financial Report Period ending 30 June 2013 Dividends
The Board announced an increase in the final dividend to 31
cents per share. This represents an increase of 3.3 percent
on the prior half and takes the full-year dividend to 61 cents
per share.
Outlook
While historically low interest rates are providing comfort
to existing borrowers, the full effects of recent cash rate
reductions are yet to be reflected in a broad return of
consumer confidence.
Despite the expectation of relatively subdued credit growth in the
coming year, we remain confident that our business model will
continue to resonate with customers.
Our industry-leading retail and business customer satisfaction
levels and the maintenance of an efficient business model will
become even more important in this environment.
The Group will continue to invest in its people and distribution,
as it prepares for an eventual improvement in business
conditions, and to leverage its unique strengths to take
advantage of the significant opportunities that exist for the
business.
Financial highlights
Full year ending
Six months ending
Profit before tax
Specific items before tax
Jun-13
Jun-12
Change
Jun-13
Dec-12
Change
$m
$m
$m
%
$m
$m
$m
487.6
326.1
161.5
49.5
233.2
254.4
(21.2)
%
(8.3)
(11.8)
115.7
(127.5)
(110.2)
14.0
(25.8)
39.8
154.3
Profit before tax and specific items
475.8
441.8
34.0
7.7
247.2
228.6
18.6
8.1
Statutory profit after tax attributable to the parent
352.3
195.0
157.3
80.7
162.9
189.4
(26.5)
(14.0)
Specific items after tax
(14.7)
117.0
(131.7)
(112.6)
11.9
(26.6)
Profit after tax before specific items
337.6
312.0
25.6
8.2
174.8
162.8
38.5
12.0
144.7
7.4
Adjusted for:
Amortisation of acquired intangibles after tax
16.9
19.5
(2.6)
(13.3)
6.5
10.4
(3.9)
(37.5)
Distributions paid/accrued on preference shares
Distributions paid/accrued on step-up preference shares
(3.1)
(3.4)
(3.9)
(4.6)
0.8
1.2
20.5
26.1
(1.5)
(1.5)
(1.6)
(1.9)
Cash basis profit after tax
348.0
323.0
25.0
7.7
178.3
169.7
2012-13
2012-13
Total
2011-12
2011-12
Total
1st Half
2nd Half
1st Half
2nd Half
$m
189.4
162.8
169.7
507.5
143.5
390.3
$m
162.9
174.8
178.3
520.0
153.7
388.7
$m
352.3
337.6
348.0
1,027.5
297.2
779.0
$m
57.9
157.4
162.6
478.1
129.5
367.5
$m
137.1
154.6
160.4
472.0
146.3
384.2
$m
195.0
312.0
323.0
950.1
275.8
751.7
41,867.0
42,245.8
42,245.8
38,567.3
40,663.0
40,663.0
1,582.8
4,216.9
4,297.7
4,297.7
4,001.1
4,109.1
4,109.1
3,334.5
3,275.2
3,275.2
3,086.8
3,089.9
3,089.9
188.6
185.3
50,505.5
51,689.2
51,689.2
48,057.6
49,989.0
49,989.0
1,700.2
6,834.9
7,266.5
14,101.4
6,476.9
6,188.7
12,665.6
1,435.8
4,492.9
4,530.2
9,023.1
4,654.0
4,206.7
8,860.7
162.4
2,342.0
2,736.3
5,078.3
1,822.9
1,982.0
3,804.9
1,273.4
0.1
0.4
8.6
6.3
21.1
5.1
Change
Full Year 2012
to
Full Year 2013
$m
%
157.3
80.7
25.6
25.0
77.4
21.4
27.3
8.2
7.7
8.1
7.8
3.6
3.9
4.6
6.0
3.4
11.3
1.8
33.5
Profit after tax attributable to parent
Profit after tax and before specific items
Cash earnings
Net interest income
Non-interest income (before specific items)
Expenses (before specific items)
Retail deposits
Ordinary equity
Funds under management
Loans under management
New loan approvals
Residential
Non-residential
16
2012-13
2012-13
1st Half
2nd Half
Full
year
total
2011-12
2011-12
1st Half
2nd Half
Full
year
total
Cost to income ratio
57.8%
56.2%
57.0%
58.2%
59.8%
59.1%
Earnings per ordinary share – cents
Cash basis earnings per ordinary share – cents
Dividend per share – cents
45.9
41.9
30.0
39.0
43.5
31.0
84.9
85.4
61.0
14.5
43.9
30.0
33.5
40.5
30.0
48.6
84.2
60.0
Change
Full Year 2012
to
Full Year 2013
(2.1)
36.3
1.2
1.0
(3.6)
74.7
1.4
1.7
Full year ending
Six months ending
Dividend per share - cents
Dividend amount payable - $m
Jun-13
Jun-12
Change
61.0
60.0
245.0
232.9
1.0
12.1
%
1.7
5.2
Payout ratio - earnings per ordinary share *
71.8%
123.5%
(51.7%)
(41.9)
Payout ratio - cash basis per ordinary share*
71.4%
71.3%
0.1%
0.1
Jun-13
Dec-12
Change
31.0
30.0
125.1
119.9
79.5%
71.3%
65.4%
71.6%
1.0
5.2
14.1%
(0.3%)
%
3.3
4.3
21.6
(0.4)
Analysis of Group
performance
Financial performance and business review
The 2013 financial year performance represents a solid result
given the higher than forecast official cash rate reductions in
the year, the subdued credit environment, the intense pricing
competition, the significant adjustment to scheme interchange
fees and the impact of large projects such as the migration of
the Adelaide banking platform to the Bendigo banking platform.
Cost containment and efficiency continued to be a major focus
of management and, over the reporting period, operating
expenses grew by just 3.6 percent. The Group maintains its
long-term 55 percent cost-to-income target.
The Retail Bank performed well for the year. The performance
of Third Party Banking and Rural Bank was only slightly below
the previous year’s performance. Wealth’s performance was
impacted by further run-off in the margin lending portfolio and
the dividend forgone after the sale of the Bank’s holding in IOOF.
The Group strengthened its balance sheet over the year
through our offer of convertible preference shares and other
capital initiatives such as the sale of the IOOF holding and the
subordinated securitisation notes, offset by the redemption of the
reset preference shares and amortisation of subordinated debt.
The Group’s underlying cash earnings were $348 million which
represents an increase of 7.7 percent on the previous year. This
equates to a cash earnings per share result of 85.4 cents - an
increase of 1.4 percent on the prior year. The components of the
cash earnings performance are set out below:
The increase in net interest income was primarily
driven by:
> an increase in loans under management. Total
loans under management increased to $51.7
billion (FY2012: $50.0 billion);
> an increase in the net interest margin. The net
interest margin before payments to Community
Bank® companies increasing to 2.21 percent
(FY2012: 2.11%). This was due to the full year
benefit of repricing of the asset portfolios in late
2011/12 combined with further repricing of the
asset portfolios in December 2012.
The major component of the increase in other income was the
$22.6 million increase in the contribution from the Homesafe
Trust. This was due to growth in the Homesafe Trust portfolio
and an increase in the housing price index over the past year.
The increase in the Group’s bad and doubtful debt (Credit)
expense was mainly due to seasonal and trade disruptions
to the north Queensland cattle sector, and an increase in the
number of bankruptcies from investors in the portfolio of Great
Southern managed investment schemes.
Analysis of net interest margin (%)
Net interest income increased over the period. The increase
was due to movements in product mix and product pricing.
Cash earnings movement FY13 ($m)
21.4
(19.2)
77.4
(37.5)
Net Interest Margin
Community Bank
& Alliance share
2.11%
0.33%
(8.1)
(4.2)
(4.8)
348.0
1.78%
Up 10bps
2.21%
0.35%
1.86%
17
323.0
Up 7.7%
June 12
Net
interest
income
Other
Income
Staff costs
Credit
Other
expenses
Tax Other specific
items & cash
adjustments
June 13
June 12
June 13
Annual Financial Report Period ending 30 June 2013 Analysis of other income
The decrease in liability product and other fee income was
largely due to a decrease in transaction fees, interchange fees
and credit card income.
The movement in wealth solutions and commission income is
mainly due to the increased volume of third party product sales.
108.2
101.0
61.3
57.3
58.5
59.8
28.0
28.5
25.1
2.5
5.7
5.3
15.6
16.2
Liability products
and other fees
Asset product fees
Wealth solutions and
other commissions
Homesafe revaluation
Trustee, management and
other services
Insurance commissions
Other Income
June 12
June 13
Analysis of operating expenses
The increase in salaries and staff related expense was mainly
due to ordinary annual salary and wage increases, plus the
acquisition of Community Telco® Australia.
The increase in occupancy costs was due to general increases
in rental, electricity and insurance premiums.
The increase in information technology costs was
predominantly due to an increase in software maintenance.
407.0
387.8
18
65.6
70.6
55.2
64.6
30.4
28.6
44.0
43.8
157.3
153.8
Salaries and staff
related
Occupancy
Information technology
Fees and commissions
11.4
10.6
Property, plant
and equipment
Intangibles amortisation
Other operating
June 12
June 13
Overview of loan
and deposit portfolios
Loans
3rd Party
Mortgages
30%
Total Gross Loans ($m)
Consumer
5%
Wealth
4%
Delphi
Bank
3%
Rural
Bank
8%
Great
Southern
1%
Business
Lending
15%
Provisions for doubtful debt
233.0
81.5
244.2
91.4
43.0
41.9
108.5
110.9
248.7
96.9
36.8
115.0
263.2
262.3
102.9
96.2
276.9
104.1
31.8
128.5
31.9
34.5
134.2
138.3
53bps
Retail
Residential
33%
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Portfolio
Funding
1%
General
Collective
Specific
Loss provisions and reserves for doubtful debts totalled
$276.9 million as at year end. This is an increase of $13.7
million since June 2012. The main reasons for the increase
are explained in the Group Performance Highlights section of
this report.
Total lending growth for the year was 4.8 percent compared to
system growth of 3.4 percent. Total loan approvals increased by
$1.4 billion.
Of this $1.3 billion related to non-residential loan approvals,
which represents a 33.5 percent increase on the previous
financial year.
The below analysis demonstrates the very high percentage
(97.9%) of loans secured by mortgages or listed securities.
Residential
mortgages
69.1%
Loan portfolio by security
Listed
securities
& managed
funds
3.8%
Other
0.5%
Commercial
mortgages
25.0%
Unsecured
1.6%
Deposits
Deposits total $47.44 billion and notes payable total $6.4 billion.
The increase in deposits represents a $1.6 billion increase in
retail deposits, sourced through the Group’s company-owned
and Community Bank® network and a $1.3 billion increase in
deposits sourced from wholesale markets.
The mix of deposits at year end is set out in the following table.
The Group continues to maintain a high retail funding base in
line with its target of 75 percent to 80 percent of total funding.
The Bank’s term deposit retention rate has consistently
exceeded 80 percent.
Historical funding mix
77%
80%
80%
78%
15%
8%
13%
8%
11%
9%
12%
10%
19
Dec-11
Jun-12
Dec-12
Jun-13
Wholesale
Securitisation
Retail
Annual Financial Report Period ending 30 June 2013 Capital adequacy
The Group maintains a conservative capital management
program based on the low risk and highly secured nature of its
loan portfolio.
The Group has significant capacity going forward for additional
capital efficiency primarily through the issuance of Tier 1
hybrid capital and Tier 2 subordinated debt.
Capital management initiatives during the year have resulted
in an 86 basis point improvement in our Tier 1 capital ratios.
The movement in the Group’s capital ratios is set out in the
following chart.
Common equity Tier 1 capital ratio recorded a moderate
improvement during the year to reach 7.82 percent by year end.
Bendigo and Adelaide Bank publishes information required
under APRA Prudential Standard 330 on its website. This
information can be found at http://www.bendigoadelaide.
com.au/public/shareholders/announcements/aps_330.asp
0.58
0.13
(0.28)
(1.07)
0.27
(0.28)
0.32
0.63
10.71
1.46
9.25
Capital movement
10.41
2.02
8.39
June 12
DRP
Retained earnings
IOOF Sale
Basel III Adj
RWA growth
& other
Sub debt
amortisation
B-Note sale
CPS issue
June 13
Tier 1
Tier 2
Divisional performance
Retail Bank
Financial Performance and Business Review
Retail Bank ($m)
74.4
10.0
(11.8)
(11.4)
231.0
169.8
Up 36.0%
June 12
Net interest
income
Other Income Operating
expenses
Credit
expenses
June 13
20
The Retail Bank’s profit before tax contribution increased from
$169.8 million to $231 million. The key driver of this was a
$74.4 million increase in net interest income that was mainly
attributable to the growth in the residential and business
lending portfolios.
Tighter term deposit pricing also contributed to an
improvement in the net interest margin and helped lift net
interest income. The net interest margin on the retail lending
portfolio remained steady with the previous financial year.
The increase in other income was due to:
> telecommunications revenue being recognised for
the first time as a result of the Group acquiring
a 100 percent ownership in Community Telco
Australia Pty Ltd; and
> an increase in commission income mainly relating
to insurance premiums, an increase in product
fees mainly relating to credit card, net transaction
fees and foreign exchange commission.
The increase in credit expense reflects the growth in the retail
businesses lending portfolio.
The increase in operating expenses was largely due to staff
cost increases.
Third Party Banking
Financial performance and business review
Rural Bank
Financial performance and business review
Third Party Banking ($m)
Rural Bank ($m)
169.1
11.3
21.2
(13.9)
(20.8)
166.9
52.9
0.2
(2.7)
Down 1.3%
Down 2.1%
5.2
(3.8)
51.8
June 12
Net interest
income
Other Income Operating
expenses
Credit
expenses
June 13
June 12
Net interest
income
Other Income Operating
expenses
Credit
expenses
June 13
The Third Party Banking profit before tax contribution decreased
marginally for the year by $2.2 million to $166.9 million.
The increase in net interest income was mainly due to the
increase in lending volume. The net interest margin also
improved slightly for the year.
The increase in other operating income was mainly due to the
improvement in the valuation of the Homesafe Trust portfolio.
The increase in operating expenses was mainly due to an
increase in the percentage of unallocated costs charged to the
business. The direct operating costs declined compared to the
previous year.
The increase in the credit expenses was primarily due to
increased loan provisioning for the Great Southern portfolio.
Bendigo Wealth
Financial performance and business review
Wealth ($m)
(8.3)
(5.6)
45.9
(4.6)
(1.5)
Down 43.6%
25.9
June 12
Margin
lending
run-off
IOOF
& other
Operating
expenses
Credit
expenses
June 13
The Wealth profit before tax contribution declined from $45.9
million to $25.9 million. The decline in net interest income was
mainly due to the continued decrease in the margin lending
portfolio which decreased by $417.6 million for the year.
This was offset (to a degree) by improvements in the net
interest income generated from deposit and cash solutions.
The decline in other income was mainly due to the business
no longer receiving dividends in relation to the IOOF equity
holding sold early in the financial year.
The increase in operating expenses was mainly due to an
increase in the percentage of unallocated costs charged to
the business. The direct costs declined compared to the
previous year.
Rural Bank’s segment contribution was broadly flat year on year.
The result was based on strong cost management which was
offset by higher credit costs.
Rural Bank achieved net loan growth of 6.0 percent against
a slight overall market contraction and compared to the 0.9
percent reduction for the prior year.
The net loan growth includes the acquisition of agricultural
lending portfolios. These portfolios contributed $103 million of
the total loan growth for the year.
The increase in both credit losses and non performing loans
were largely attributable to exposures in the northern regions
of Australia.
Further reductions in rural property prices in these areas,
combined with challenging export conditions, continue to
negatively impact the performance of these markets.
Retail funding remained a core focus with deposit growth
increasing by 5.3 percent compared to 4.4 percent for the
previous year.
Net interest margin fell by 10 basis points over the year, largely
driven by product repricing in response to competitor activity.
Operating expenses benefited from a lower headcount and
reduced discretionary expenses across a number of line items.
While the medium term outlook for agriculture remains
positive, we expect that in the short term the continued
uncertainty around certain export markets, a higher Australian
dollar and the potential for further softening in rural property
prices is likely to result in relatively subdued market activity
and growth.
Further information about the Group’s financial results and
financial position are presented in the Annual Financial Report.
21
Annual Financial Report Period ending 30 June 2013 Directors’ report
Your Board of Directors has pleasure in
presenting the 149th Financial Report of
Bendigo and Adelaide Bank Limited and its
controlled entities for the year ended 30
June 2013.
Directors
The names and details of the Company's directors are as follows;
Robert Johanson, Chairman, Independent
BA, LLM (Melb), MBA (Harvard), 62 years
Note: Standing for re-election at the 2013 AGM
Term of office: Robert has been a Company director for 25
years. He was appointed Chairman in 2006.
Skills, experience and expertise: Robert has experience in
banking and financial services and expertise in corporate
strategy, capital management, risk management and mergers
and acquisitions. He has more than 30 years experience in
providing corporate advice on capital market transactions to a
wide range of public and private companies.
Board committees: Governance & HR, Technology
and Change.
Group and joint venture directorships: Rural Bank Ltd and
Homesafe Solutions Pty Ltd (Chair) and Bank of Cyprus
Australia Ltd (from March 2012 to August 2012).
Other director and memberships (current and within last
three years): Member, Takeovers Panel; Deputy Chancellor,
University of Melbourne; Chairman, Australia India Institute
and Chairman of The Conversation; Director, Robert Salzer
Foundation Ltd; and Director of Grant Samuel Group Pty Ltd.
Mike Hirst, Managing Director, not independent
BCom (Melb), SFin, 55 years
Term of office: Mike was appointed as Managing Director and
Chief Executive Officer of the Company in 2009.
Skills, experience and expertise: Mike joined the Group when
he was appointed as a director of Sandhurst Trustees Limited
(a wealth management subsidiary of the Company) in 2001
and he became an employee of the Company later in 2001.
Mike has extensive experience in banking, treasury, funds
management and financial markets, including from previous
senior executive and management positions with Colonial Ltd,
Chase AMP Bank and Westpac.
Board committees: Mike has a standing invitation to attend
all committee meetings.
Group and joint venture directorships: Rural Bank Ltd and Bank
of Cyprus Australia Ltd (from March 2012 to August 2012).
22
Other director and memberships (current and within last
three years): Director, Treasury Corporation of Victoria;
Member; Financial Sector Advisory Council and Business
Council of Australia; Councillor, Australian Bankers’
Association; Member, Centre for Workplace Leadership
Advisory Board.
Jenny Dawson, Independent
B Bus (Acc), FCA, MAICD, 48 years
Term of office: Jenny joined the Board in 1999.
Skills, experience and expertise: Jenny has experience in
financial reporting and audit, IT internal control reviews, internal
audit and risk management. Jenny worked with Arthur Andersen
for ten years in the audit and IT controls division, and also
worked for the Company (her employment ended in 1999).
Board committees: Audit (Chair), Credit.
Group and joint venture directorships: Sandhurst Trustees Ltd
(Chair), Community Sector Banking Pty Ltd, Community Sector
Enterprises Pty Ltd.
Other director and memberships (current and within last
three years): Member, Victorian Regional Policy Advisory
Committee; Chair, Regional Development Australia Committee
for the Loddon Mallee Region; Member, Independent Audit
Committee Goulburn-Murray Water; Former Director, Goulburn-
Murray Water (ended 2012); Former Director, Coliban Region
Water Corporation (ended 2010).
Jim Hazel, Independent
BEc, SFFin, FAICD, 62 years
Note: Standing for re-election at the 2013 AGM
Term of office: Jim joined the Board in 2010.
Skills, experience and expertise: Jim is a professional public
company director who has had an extensive career in banking
and finance, including in the regional banking industry. Jim
was Chief General Manager of Adelaide Bank (his employment
ended in 1999).
Board committees: Risk (Chair), Credit, Governance & HR.
Group and joint venture directorships: Rural Bank Ltd.
Other director and memberships (current and within last
three years): Chairman, Ingenia Communities Group Ltd (listed,
period June 2012 to present); Director, Centrex Metals Ltd
(listed, period of directorship: 2010 to present), Impedimed Ltd
(listed, period of directorship: 2007 to present), Motor Accident
Commission and Coopers Brewery Ltd.
Jacqueline Hey, Independent
BCom (Melb), Graduate Certificate in Management (Southern
Cross University), GAICD, 47 years
Term of office: Jacquie joined the Board in 2011.
Skills, experience and expertise: Jacquie has experience
in the areas of telecommunications, marketing and sales,
including as CEO/Managing Director of Ericsson in the UK and
in Australia. Jacquie worked with Ericsson for more than 20
years in finance, marketing and sales and in leadership roles
in Australia, Sweden, the UK and the Middle East.
Board committees: Audit, Risk, Technology and Change (Chair
from July 2012)
Group and joint venture directorships: Bank of Cyprus
Australia Ltd (from March 2012 to August 2012)
Other director and memberships (current and within last
three years): Director, Qantas Airways Limited (ASX listed,
period August 2013 to present), Special Broadcasting
Service (SBS), Australian Foundation Investment Company
Limited, Cricket Australia and Honorary Consul of Sweden
for Victoria. Former director of Victorian Branch of Australian
Industry Group (AIG) (ended 2010), Australian Mobile
Telecommunications Association (ended 2010) and Ericsson
Group Companies (Australia & New Zealand) (ended 2010).
Robert Hubbard, Independent
BA(Hons) Accy, FCA, MAICD, 54 years
Note: Standing for election at the 2013 AGM
Group and joint venture directorships: Bank of Cyprus
Australia Ltd (from March 2012 to August 2012)
Other director and memberships (current and within last three
years): Former Director, Forestry Tasmania (ceased 30 June
2012) and City West Water (ceased 30 September 2011).
Tony Robinson, Independent
B Com (Melb), ASA, MBA (Melb), 55 years
Term of Office: Rob joined the Board in 2013.
Term of office: Tony joined the Board in 2006.
Skills, experience and expertise: Rob is an accountant
and auditor based in Brisbane. He retired as a partner of
PricewaterhouseCoopers Brisbane in March 2013 after 22
years practising in the areas of corporate advice and audit,
where he was the auditor of some of Australia’s largest listed
companies. Rob also provided accounting and due diligence
services for acquisitions, divestments, capital raisings and
public takeovers. Rob is now a professional non-executive
director in various community and commercially focussed
organisations.
Board committees: Audit, Risk
Group and joint venture directorships: nil
Other director and memberships (current and within last
three years): Orocobre Ltd (ASX and TSX listed, period of
directorship 2012 to present); Chairman of Opera Queensland
and Multiple Sclerosis Australia, and a director of UQ Health
Care Pty Ltd, MS Research Australia, MS International
Federation and Council member of the University of the
Sunshine Coast.
David Matthews, Independent
Dip BIT, GAICD, 55 years
Note: Standing for re-election at the 2013 AGM
Term of office: David joined the Board in 2010.
Skills, experience and expertise: David has experience in small
business and agribusiness. David has involvement in a number
of agricultural industry bodies including as a director and vice
Chairman of Pulse Australia, and has a strong connection to
regional communities. He chaired the first Community Bank®
company in Rupanyup and Minyip when it was first established
in 1998.
Board committees: Credit, Audit
Group and joint venture directorships: Member of the
Community Bank® Strategic Advisory Board.
Other director and memberships (current and within last
three years): Director, Pulse Australia, Rupanyup/Minyip
Finance Group Ltd.
Deb Radford, Independent
B.Ec, Graduate Diploma Finance & Investment, 57 years
Term of office: Deb joined the Board in 2006.
Skills, experience and expertise: Deb has over 20 years
experience in the banking industry with both international and
local banks. Deb also worked in the Victorian State Treasury,
and ran her own consulting business between 2001 and 2007
advising the government on commercial transactions.
Board committees: Credit (Chair), Technology and Change,
Governance & HR
Skills, experience and expertise: Tony has many years’
experience in financial services, particularly wealth
management and insurance. Tony’s previous roles include
Managing Director of Centrepoint Alliance Limited, Chief
Executive Officer and Executive Director of IOOF Holdings
Ltd, Managing Director and Chief Executive Officer of OAMPS
Limited, joint Managing Director of Falkiners Stockbroking,
Managing Director of WealthPoint, and senior executive
positions at Link Telecommunications and Mayne Nickless.
Board committees: Risk, Governance & HR (Chair)
Group and joint venture directorships: n/a
Other director and memberships (current and within last
three years): Former director, Centrepoint Alliance Limited
(listed, period of directorship: 2009 to 2013)
Share Issues
The following share classes were issued during the financial
year:
Ordinary shares
Ordinary shares issued under Employee Share
Grant Scheme
Ordinary shares issued under the Dividend
Reinvestment Plan
Ordinary shares issued in lieu of dividends under
the Bonus Share Scheme
Ordinary shares issued under an Institutional
Entitlement
Ordinary shares issued under a Retail Entitlement
No. of shares
-
8,968,488
806,110
-
-
Total ordinary shares issued
9,774,598
Share Options and Rights
Unissued Shares:
As at the date of this report, there were no unissued ordinary
shares under options. There were 591,357 performance
shares and no rights to unissued ordinary shares. Refer to
notes 37 and 39 of the financial statements for further details
of the rights and options outstanding. The Board may decide
how to treat the participant’s performance shares to make
sure the participant is neither advantaged nor disadvantaged
as a result of any share issues or reconstructions.
Shares issued as a result of the
exercise of options:
During the financial year no performance rights or options
vested (2012: nil) and 198,712 (2012: 210,864) performance
shares vested and were automatically exercised to acquire
ordinary shares in the Company at a nil exercise price.
23
Annual Financial Report Period ending 30 June 2013 Ordinary Share Dividends Paid or Recommended
Dividends paid:
Final dividend 2012 of 30.0¢ per share, paid September 2012
Interim dividend 2013 of 30.0¢ per share, paid March 2013
Dividend recommended:
Final dividend 2013 of 31.0¢ per share, declared by the directors on 19 August 2013,
payable 30 September 2013
All dividends were fully franked
Shareholders electing to receive dividends in the form of shares received the following ordinary shares, paid in full:
September 2012
March 2013
In addition, shareholders electing to receive bonus shares in lieu of dividends received the following ordinary shares,
paid in full:
September 2012
March 2013
Preference Share Dividends Paid or Recommended
Dividends paid:
91.81 cents per share paid on 17 September 2012 (2011: 115.07 cents)
87.54 cents per share paid on 17 December 2012 (2011: 111.11 cents)
77.63 cents per share paid on 15 March 2013 (2012: 105.50 cents)
83.45 cents per share paid on 17 June 2013 (2012: 104.87 cents)
Dividend announced:
A dividend of 83.45 cents per security for the period 17 June 2013 to 15 September
2013 (inclusive), announced on 18 June 2013, payable 16 September 2013
All dividends were fully franked
Step-up Preference Share Dividends Paid or Recommended
Dividend paid:
105.00 cents per share paid on 10 July 2012 (2011: 116.00)
94.00 cents per share paid on 10 October 2012 (2011: 118.00)
87.00 cents per share paid on 10 January 2013 (2012: 114.00)
83.00 cents per share paid on 10 April 2013 (2012: 108.00)
Dividend announced:
A dividend of 83.0¢ per security for the period 10 April 2013 to 9 July 2013
(inclusive), announced on 11 April 2013, payable 10 July 2013
All dividends were fully franked
24
Reset Preference Share Dividends Paid or Recommended
309.68 cents per share paid on 1 November 2012 (2011: 310.53)
Convertible Preference Share Dividends Paid or Recommended
65.49 cents per share paid on 13 December 2012 (2011: nil)
282.72 cents per share paid on 13 June 2013 (2012: nil)
$117.7 million
$118.3 million
$125.1 million
4,957,637
4,010,851
402,549
403,561
$0.8 million
$0.8 million
$0.7 million
$0.8 million
$0.8 million
$1.1 million
$0.9 million
$0.9 million
$0.8 million
$0.8 million
$2.8 million
$1.8 million
$7.6 million
Remuneration
overview FY2013
This summary provides shareholders
a concise overview of the Group’s
remuneration outcomes for the 2013
financial year. This overview is unaudited
and has not been prepared to comply
with accounting standards or statutory
requirements. The statutory remuneration
disclosures are contained in the Company’s
2013 Remuneration Report.
Non-executive director fees
There was no change to the base non-executive director
fee for the year ($165,000 ($412,500 for the Chair)) and
there were no additional fee payments for Board committee
memberships. The non-executive directors again contributed
$5,000 each to fund the Board scholarship for disadvantaged
students.
Senior executive base pay
The 2013 base pay for senior executives, including the
Managing Director, were set by the Board on recommendation
of the Governance & HR Committee in August 2012. There were
no increases to the fixed remuneration or Short Term Incentive
(STI) arrangements with the exception of two senior executives.
Deferred base remuneration
Deferred base remuneration is provided in the form of deferred
share grants. A deferred share is a fully paid ordinary share
issued at nil cost to the senior executive. Deferred shares are
beneficially owned by the senior executive from grant date,
but are held on trust for a two year deferral period. Vesting
of these shares is subject to continued employment with
the Company and any adjustment for risk and performance
decided by the Board.
Short Term Incentive (STI)
In August 2013 the Board, on recommendation of the
Governance & HR Committee, decided that the criteria for the
establishment of a group STI performance bonus pool had
been met for the year and approved the establishment of a
group bonus pool for the payment of Short Term Incentive (STI)
and bonus payments. One-third of STI awards that exceed a
$30,000 threshold are paid as equity in the Company and
deferred for two years. The value of the STI cash component
received by senior executives for the year are presented in the
following table. The value of the deferred equity component for
2013 will be amortised over the two year deferral period (ie
2014 and 2015).
Long Term Incentive (LTI)
The Managing Director’s LTI arrangement was set in 2009.
Shareholders approved an issue of five equal annual parcels
of performance shares to the Managing Director, with the
performance periods measured over one to five years (the final
performance period ends 30 June 2014). Each annual parcel
of performance shares is subject to earnings per share (EPS)
and total shareholder return (TSR) tests. The EPS test for the
parcel tested on 30 June 2013 was met. The TSR test for the
year was partially met and 65 percent of these performance
shares vested.
In July 2012 the Board approved new performance share grants
for other senior executives. The grants are a single tranche
with a four year performance period. The four year performance
period consists of a twelve month initial performance period
for EPS testing (1 July 2012 to 30 June 2013) and a three year
performance period for relative TSR testing (1 July 2013 to 30
June 2016).
Details of the LTI terms including the achievement of
performance measures and the number and value of
performance shares that vested for the year are presented in
the Remuneration Report.
25
Annual Financial Report Period ending 30 June 2013 The table below sets out the senior executive remuneration
arrangements for FY2013 and FY2012.
Senior executive
Mike Hirst
Marnie Baker
Dennis Bice
John Billington
Richard Fennell
Russell Jenkins
Tim Piper
Stella Thredgold
Andrew Watts
Totals
Base pay 1
$1,242,782
$1,285,106
$536,708
$565,967
$417,341
$421,544
$423,974
$427,706
$509,201
$494,184
$517,669
$487,785
$415,779
$432,094
$336,186
$308,722
$392,441
$426,907
$4,792,081
Deferred base
pay 2
Cash bonuses
(STI) 3
Deferred STI 4
Performance
shares 5
Total
$571,643
$596,795
$50,000
$169,890
$25,000
$87,684
$36,668
$111,186
$50,000
$167,612
$50,000
$169,890
$37,500
$125,591
$25,000
$75,805
$37,500
$113,712
$883,311
$117,333
-
$66,667
-
$50,000
-
$24,000
-
$66,667
-
$58,667
-
$44,000
-
$30,000
-
$43,333
-
$50,000
$50,000
$33,332
$33,332
$11,665
$11,665
$16,666
$16,666
$33,332
$33,332
$26,665
$26,665
$20,832
$20,832
$13,330
$13,330
$16,666
$16,666
$434,448
$2,416,206
$471,795
$2,403,696
$22,603
$125,624
$11,302
$67,582
$16,575
$68,798
$22,603
$121,653
$22,603
$125,624
$16,952
$91,038
$11,302
$46,906
$16,952
$70,361
$709,310
$894,813
$515,308
$588,475
$517,883
$624,356
$681,803
$816,781
$675,604
$809,964
$535,063
$669,555
$415,818
$444,763
$506,892
$627,646
$500,667
$222,488
$575,340
$6,973,887
$4,850,017
$1,618,165
-
$222,488
$1,189,379
$7,880,049
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
26
1 Base pay: This is the total amount of cash salary, allowances, non-monetary benefits, company superannuation contributions, notional interest-free loan benefit,
annual leave and long service leave paid in the financial year. The amounts also include the movement in annual and long service leave accruals for the year.
2 Deferred base pay: Senior executives’ deferred base pay is made as a grant of “deferred shares”. These are shares held on trust over a deferral period. The amounts
of deferred base pay included in the table above represent the accounting fair value of the deferred share grants amortised over the applicable deferral period. A
change to a new plan for all senior executives (except the Managing Director) in 2013 has resulted in a significant reduction in the accounting value of their deferred
base pay for 2013 because the number of deferred shares granted in 2013 was less than the number of shares of the previous grant (annualised), and the value of
the 2013 grant will be amortised over the two year deferral period – FY2013 and FY2014.
3 Cash bonus STI: This is the value of STI payments awarded in cash for the financial year.
4 Deferred STI: In accordance with the Company’s remuneration policy, one-third of total STI awards that exceed $30,000 are subject to deferral into shares in the
Company for a two year period. These amounts are the accounting value of the 2011 STI deferred share grants to senior executives amortised over the two year
deferral period (being FY2012 and FY2013).
5 Performance Shares: Senior executives’ performance shares are rights to receive shares, subject to minimum EPS and TSR performance conditions. The amounts
of performance shares included in the table above represent the accounting fair value of the rights amortised over the applicable performance period. A change to a
new plan for all senior executives (except the Managing Director) in 2013 has resulted in a significant reduction in the accounting value of their performance shares
for 2013 because the fair value ascribed to the 2013 grant (calculated using option pricing methodology) was lower than the fair value for the previous year and the
performance period is longer (four years, instead of three).
Remuneration Report
This Remuneration Report is for the Company
and the consolidated entity (Group) for the
year ended 30 June 2013. It forms part of the
Directors’ Report. It has been audited. The
Remuneration Report explains the approach
the Company takes to remuneration for non-
executive directors and for senior executives,
and details the remuneration provided.
In this report the term “senior executive” is used to refer to all
executives who fall within the definition of key management
personnel of the Group – ie those persons with authority
and responsibility for planning, directing and controlling the
activities of the Group, directly or indirectly.
1. Key Management Personnel (KMP)
Name
Position
Term as KMP
Non-Executive Directors
Robert Johanson
Chairman
Jenny Dawson
Jim Hazel
Jacqueline Hey
Director
Director
Director
Robert Hubbard
Director
David Matthews
Director
Terry O’Dwyer
Director
Deb Radford
Tony Robinson
Director
Director
Managing Director & CEO
Full Year
Full Year
Full Year
Full Year
From:
2 April 2013
Full Year
Ended:
13 August 2012
Full Year
Full Year
Mike Hirst
Managing Director & Chief
Executive Officer
Full Year
Group Executives
Marnie Baker 1
Executive: Banking and Wealth
Full Year
Dennis Bice
Executive: Retail Banking
John Billington
Executive: Bendigo Wealth
Richard Fennell
Russell Jenkins 1
Executive: Finance & Treasury
(CFO)
Executive: Customer and
Community
Tim Piper
Executive: Risk
Full Year
Full Year
Full Year
Full Year
Full Year
Stella Thredgold
Executive: Corporate Resources
Full Year
Andrew Watts
Executive: Business Change
Full Year
2. Non-executive director remuneration
The remuneration of non-executive directors is based on the
following principles and arrangements. There is no direct
link between non-executive directors’ fees and the annual
results of the Company. Non-executive directors do not
receive bonuses or incentive payments, nor participate in the
Company’s employee equity participation plans.
The shareholders approve an aggregate fee pool that includes
payments by the Company and its subsidiaries. The current
fee pool for non-executive directors of $2,500,000 was
approved at the 2011 Annual General Meeting. This fee pool
covers the fee payments for the main Board and payments to
Company directors on subsidiary Boards and the Community
Bank® Strategic Advisory Board. It also covers applicable
company superannuation contributions. These amounts are
also included in the non-executive director fee disclosures.
The Governance & HR Committee recommends to the Board
the remuneration policy and remuneration for non-executive
directors. The following considerations are taken into account
in setting fees:
(a) The scope of responsibilities of non-executive
directors and time commitments. This includes
taking into account any changes in the operations
of the Company and industry developments which
impact director responsibilities, at both the Board
and committee level.
(b) Fees paid by peer companies and companies
of similar market capitalisation and complexity,
including survey data and peer analysis to
understand the level of director fees paid in the
market by companies of a relatively comparable
size and complexity, particularly in the banking and
finance sector.
Non-executive directors receive a fixed annual fee, which
is reviewed annually. The Chairman receives a higher base
fee in recognition of the additional time commitment and
responsibilities. No additional fees are paid for serving on
Board committees. Additional fees were paid to directors who
are also members of the Rural Bank and Sandhurst Trustees
Boards or member of the Community Bank® Strategic
Advisory Board. The base fee for the reporting period was:
(a) $165,000 for directors (fees were last increased
on 1 November 2011 from $143,000 to
$165,000)
(b) $412,500 for the chair (two and half times the
base fee).
The Board decided to increase the base fee by 2.5 percent
in August 2013. The increase is in line with general market
movements in director fees.
1 On 5th July 2013 the Managing Director announced that Ms Alexandra Tullio had been appointed to the position Executive, Margin Lending reporting directly to the
Managing Director. In addition, the following changes to the executive committee were announced on 19 August 2013. Marnie Baker will head up, as a continuing
executive member, a new Customer Voice activity that comprises Customer Led Connections, Marketing, Customer Help, Banking Products & Solutions, Access &
Payments and the ongoing LINX development. Russell Jenkins ceases as an executive member to take on the role of Co-Chair of the Community Bank® Strategic
Advisory Board and to head up a significant Community Bank® project designed to set a shared vision for the Community Bank® model spanning the next 15
years. Robert Musgrove will join the executive and lead the Community Bank®, Community Strengthening, Community Solutions and Partnering and Group Strategy
businesses, reporting to the Managing Director.
27
Annual Financial Report Period ending 30 June 2013 The directors support a Company scholarship fund. This
support is generally provided by way of the director forfeiting
the amount of the contribution ($5,000 each) so that the
director receives a lower base fee and that amount is instead
paid into the scholarship fund.
The amounts paid to non-executive directors for the 2012 and
2013 financial years are disclosed in Table 1.
3. Remuneration governance
The Governance & HR Committee provides assistance
to the Board in relation to the Company’s remuneration
arrangements. The Board makes all final decisions in relation
to those arrangements. The current members of
the committee are all independent non-executive directors:
1. Tony Robinson (Chairman)
2. Jim Hazel
3. Robert Johanson
4. Deb Radford
The committee has responsibility for providing input into
the Group’s risk framework in relation to remuneration risk,
in particular, recommending to the Board the remuneration
arrangements for the senior executives (including the Managing
Director). Further details of the committee’s responsibilities for
remuneration are summarised below and the committee charter
is available from the Company’s website.
The committee’s remuneration responsibilities include
conducting regular reviews of, and making recommendations
to the Board on, the remuneration policy taking into account
the Company’s strategy, objectives, risk profile, shareholder
interests, regulatory requirements, corporate governance
practices and market developments.
The committee is required to determine the persons whose
activities, individually or collectively, may affect the financial
soundness of the institution, and for whom a significant
portion of total remuneration is based on performance
(additional management personnel) as required under the
remuneration requirements of the Australian Prudential
Regulation Authority (APRA).
The committee makes an annual recommendation to
the Board on the remuneration of the Managing Director,
other senior executives and any non-administrative direct
reports to the Managing Director and any additional
management personnel. The committee also makes an
annual recommendation to the Board on the remuneration of
categories of persons covered by the remuneration policy, not
addressed above, namely:
(a) Other responsible persons (as defined in APRA’s
Prudential Standard APS 520 Fit and Proper).
(b) Risk and financial control personnel.
The committee makes recommendations to the Board on
the exercise of the Board’s discretion to adjust incentive and
performance-based components of remuneration to reflect
the outcomes of business activities, the risks relating to
those activities and the time necessary for the outcomes of
the business activities to be reliably measured. This includes
adjusting performance-based components of remuneration
downwards, to zero if appropriate, where necessary to protect
the financial soundness of the Company or to respond to
significant, unexpected or unintended consequences that were
not foreseen by the Board.
The committee may consult a professional adviser or expert,
at the cost of the Company, if the committee considers it
necessary to carry out its duties and responsibilities. No
remuneration recommendations were obtained from external
consultants in relation to any of the key management
personnel during the reporting period.
4. Senior executive remuneration
policy and structure
The key features of the Company’s remuneration policy,
applicable to remuneration paid in FY2013, are set out below.
The Board has sought to maintain a remuneration framework
that provides the desired flexibility and reward structure to
support the Company’s strategy whilst recognising the need to
provide remuneration arrangements aligned with shareholder
interests and senior executive roles, responsibilities and
market relativities. The following principles apply to the
remuneration framework at both an organisational and
divisional level:
(a) Remuneration should facilitate the delivery of
superior long term results for the business and
shareholders and promote sound risk management
principles.
(b) Remuneration should support the corporate values
and desired culture.
(c) Remuneration should promote behaviour that
meets customers’ reasonable expectations and
protects their interests.
(d) Remuneration should support the attraction,
retention, motivation and alignment of the talent
we need to achieve our business goals.
(e) Remuneration should reinforce leadership,
accountability, teamwork and innovation.
(f) Remuneration should be aligned to the contribution
and performance of the businesses, teams and
individuals.
28
This includes recommendations on the following:
(a) Changes in the structure of remuneration
arrangements.
(b) The basis on which performance based remuneration
is provided, including the pool of funds available for
distribution as bonuses.
4.1 Remuneration components
The terms of employment for all senior executives contain the
following components:
a. Base pay comprising:
» Fixed base remuneration (includes any
salary sacrifice arrangements and Company
superannuation)
» Deferred base pay (annual grants of deferred
shares); and
b. Performance based “at-risk” pay comprising:
» Short Term Incentive - payment that is
subject to annual Company performance,
» Long-Term Incentive - involving grants of
performance shares subject to long term
performance and service conditions.
The details of senior executive remuneration payments for the
2013 and 2012 financial years are disclosed in Table 2 and
Table 3.
4.2 Changes in remuneration mix
Commencing for FY2013, the Board established a new equity
based remuneration component for senior executives.
The remuneration mix for senior executives is made up of fixed
base, deferred base, STI and LTI components. Deferred base
pay, deferred STI and LTI are equity based to ensure alignment
with the interests of shareholders. These changes did not apply
to the Managing Director as his remuneration is governed by
a separate arrangement which corresponds with the first five
years of his fixed term contract (entered into in 2009).
4.3 Fixed base remuneration
Fixed remuneration in the form of base pay is designed to
reflect the value the senior executive provides to the Group
including the skills and competencies needed to generate
targeted results, their sustained contribution to the team
and Group and the value of the role and contribution of
the individual in the context of the external market. Senior
executive base remuneration is reviewed annually and is set
having regard to the need to attract, motivate and retain the
appropriate executive management.
In setting the remuneration of senior executives, the Board
takes into account general market and peer information, as
well as the experience and expertise of the individual relative
to their respective role and responsibilities and with a view to
maintaining a moderate market positioning for senior executive
remuneration. There were no increases to the fixed remuneration
arrangements for senior executives for the year with the
exception of two senior executives who received increases in
recognition of additional responsibilities and workload.
4.4 Deferred base pay (deferred share grants)
Annual grants of deferred shares are made to senior
executives as part of their base pay that are subject to
service and risk adjustment conditions. Deferred base pay
was introduced to further align the remuneration of senior
executives with the interests of shareholders by exposing an
additional percentage of senior executive remuneration to the
market value of the Company’s shares.
The deferred shares are fully paid ordinary shares granted at
no cost to the recipient. They have no exercise price and are
beneficially owned by the senior executive from the grant date
but held on trust for two years by the plan trustee, subject to
the below vesting conditions. The recipient is entitled to vote
and to receive any dividend, bonus issue, return of capital or
other distribution made in respect of vested deferred shares.
1. Service condition – continued employment for the
two years from the beginning of the financial year
in respect of which the grant is made; and
2. Risk adjustment – any adjustment the Board
decides to make to take into account the
outcomes of business activities and the risks
related to the business activities.
Details of deferred share grants made by the Company are
disclosed in Tables 4, 5 and 6.
4.5 Short Term Incentive
The senior executive remuneration packages include an
annual incentive component that is awarded in cash and
deferred equity in the Company. The incentive is designed
to reward the achievement of annual financial and business
goals, taking into account risk management and compliance,
and senior executive contributions to longer term growth and
performance. The senior executive STI components for the
2013 financial year did not increase on the previous year. The
STI component is subject to the achievement of quantitative
and qualitative performance measures.
The Board determined that the criteria for establishment
of a Group performance bonus pool had been met and a
bonus pool was established for the 2013 financial year.
Further information on the structure of STI arrangements,
performance measures and STI payments for the year are
disclosed in Section 5 and Table 3.
4.6 STI deferral and forfeiture
STI remuneration is subject to deferral as set out below.
(a) One-third of STI awards that exceed the $30,000
threshold ($50,000 for FY2014) set by the Board
are subject to deferral;
(b) Deferral is for two years from the end of the
financial year for which the STI is granted;
(c) The amount deferred is converted into shares in
the Company;
(d) The participant is entitled to vote and receive
dividends on the deferred equity.
Forfeiture of the STI deferred component occurs if an
employee resigns or, if an employee acts fraudulently or
dishonestly and in other cases decided by the Board (for
example, due to an adjustment for risk).
29
Annual Financial Report Period ending 30 June 2013 4.7 Long-Term Incentive (performance share grants)
LTI is discretionary equity-based remuneration designed to
drive and reward long-term growth and sustained Company
value, aligning the interests of shareholders and senior
executives. At the Board’s discretion, the Managing Director
and other senior executives may be invited to participate in
long-term incentive plans involving grants of performance
shares. The grants are subject to long-term performance and
service conditions and are designed to link senior executive
reward with key performance measures that underpin
sustainable longer term growth in shareholder value.
The following long-term incentive arrangement is in place.
Salary sacrifice, deferred share
and performance share plan
Established
2008
Status
Current - First grant made in December 2009.
Participants
Senior executives (including the Managing Director)
and other senior management approved by the Board.
Nature of grants
Grants of performance shares subject to performance
and service conditions set by the Board. If the
performance or service conditions are not satisfied
during the performance periods, the performance
shares lapse and the senior executives receive no
value from the grants.
Further information on the structure of LTI arrangements for
the Managing Director and senior executives is presented at
Section 6 and Tables 4, 5 and 6.
4.8 Risk adjustment: STI & LTI
The Board has discretion to adjust variable remuneration
(Deferred Shares, STI and LTI) to reflect the following:
(a) The outcomes of business activities.
(b) The risks related to the business activities taking
account, where relevant, the cost of the associated
capital.
(c) The time necessary for the outcomes of those
business activities to be reliably measured.
This includes adjusting performance-based components of
remuneration downwards, to zero if appropriate.
4.9 Mix of remuneration components
The following table sets out the senior executive remuneration
mix for FY2013. The ‘at-risk’ components for senior executives
vary depending on their role and ability to influence the
Company’s performance and financial standing.
Deferred
Base
Pay 2
Fixed
Base 1
STI 3
(Cash
paid)
STI 3
(Deferred)
Mike Hirst
Marnie Baker
Dennis Bice
John Billington
Richard Fennell
Russell Jenkins
Tim Piper
Stella Thredgold
Andrew Watts
47%
52%
62%
52%
50%
49%
58%
58%
53%
19%
9%
8%
9%
10%
10%
12%
8%
9%
10%
14%
10%
14%
14%
14%
8%
11%
13%
5%
7%
5%
7%
7%
7%
4%
6%
6%
LTI 4
19%
18%
15%
18%
19%
20%
18%
17%
19%
1 Fixed comprises base cash salary, salary sacrifice, superannuation and allowances,
2 For senior executives, grants of deferred shares subject to continued service
and risk adjustment conditions. For the Managing Director, the percentage
represents the service component of the 2009 performance share grant.
3 These amounts are subject to performance levels being achieved in relation
to values, risk and performance.
4 These amounts are subject to target performance levels being achieved and
continued service with the Company.
4.10 Hedging
A member of key management personnel and their closely related
parties may not enter into a transaction designed to remove
the at-risk element of the equity before it has vested. This also
applies to the at-risk element of equity after it has vested, if it
is subject to a holding lock. These restrictions are in the staff
trading policy and remuneration policy.
The Company treats compliance with these policies as
important. At the end of each financial year, the Company
requires a confirmation from each participant in the plan that
they have complied with these restrictions. If an employee
breaches either of these restrictions the employee forfeits all
variable remuneration in the form of equity that is subject to
the prohibition at the time of the breach.
4.11 Margin loan facility restriction
The staff trading policy also prohibits designated officers,
including non-executive directors and senior executives, from
using the Company’s securities as collateral in any margin
loan arrangements.
30
5. STI specific arrangements and measures
5.1 Setting annual STI components and measures
The maximum potential STI component for senior executives
(including the Managing Director) is set by the Board at
the start of each financial year. In setting the potential STI
component the Board takes into account market data and the
senior executive’s role and responsibilities. The objective is to
link a reasonable proportion of senior executive remuneration
with the Company’s annual performance and the achievement
of short and medium term results and business priorities that
enhance the future prospects of the Company. The STI is set
at a level that does not encourage inappropriate behaviour and
short-term risk taking.
5.2 Group bonus pool allocation
The payment of STI awards to senior executives (including the
Managing Director) may be adjusted at a number of levels for
performance as well as financial and risk outcomes. In the
first instance, the payment of STI awards to senior executives
is dependent on the Group bonus pool established for the
payment of STI awards and bonuses to group employees.
At the start of each year the Board sets the minimum level of
Company performance to be achieved before a bonus pool will
be established. The Board also sets the parameters used to
determine the amount of funds allocated to the Group bonus
pool if the minimum level of performance is exceeded. The
parameters are structured so that the aggregate amount that
can be allocated to the bonus pool is capped.
For the 2013 financial year the minimum level of performance
and bonus pool allocation parameters set by the Board were
based on the Company’s cash earnings performance. The
Board also set the financial and risk measures that were
used to adjust, at the discretion of the Board, any bonus
pool allocation calculated using the cash earnings formula.
The adjustment is to reflect the types and levels of risk
involved in achieving the performance and take into account
financial measures including the achievement of targeted
return on equity performance, capital ratios, liquidity ratios
and the Company’s risk weighted asset base. The Board
selected these measures to provide a balance between
growth, shareholder returns and the management of key risks
associated with the Company’s business activities.
The Board decision, based on a recommendation from
the Governance & HR Committee, takes into account the
Company’s cash earnings performance and the achievement
of other financial outcomes and risk targets set by the Board
at the start of the year.
For the 2013 financial year the Board established a bonus pool.
The bonus pool was 44 percent of the maximum capped amount.
5.3 STI performance assessments and payments
The payment of individual STI awards to senior executives
and other participants is at the discretion of the Board, taking
into account the Company’s capacity under the bonus pool to
pay STI awards to both general staff and senior executives.
Depending on the bonus pool allocation determined by the
Board, the potential maximum STI awards to senior executives
may be adjusted downwards proportionately by the Board to
reflect the Company’s capacity to pay bonus to general staff
and executives.
At an individual level, the payment of STI awards is based
on the achievement of Group financial targets and individual
executive performance including business unit performance,
the individual’s contribution to team performance and their
contribution to meeting risk and compliance requirements at a
Group, team and individual level. Further details are provided
at Sections 5.4 and 5.5.
The performance conditions are measured shortly after
Board approval of the Company’s year-end profit result
announcement. The achievement of the cash earnings
measure for the Managing Director and senior executives
is measured on the basis of the Company’s reported cash
earnings, adjusted at the Board’s discretion, for key financial
and risk outcomes. This method of assessment has been
chosen because it represents an objective measure of
earnings performance while enabling the Board to exercise
its discretion for financial and risk outcomes arising from the
Company’s business activities.
The non-executive directors conduct the assessment of
the Managing Director’s performance with reference to the
quantitative and qualitative measures set by the Board at the
start of the year. Taking into account the Group bonus pool
available for the payment of STI awards and bonuses to Group
employees, the Board will decide the amount of the STI based
upon the achievement of the agreed performance measures.
This allows for independent and objective assessment of the
achievement of performance measures while enabling any
necessary risk adjustments to occur at the Board’s discretion.
The Managing Director assesses the performance of other
senior executives and recommends the annual STI payments
for senior executives for consideration by the Governance
& HR Committee and decision by the Board. In making the
recommendation, the Managing Director also takes into
account the Group bonus pool available for the payment of
STI awards and bonuses to Group employees. This method
of assessment has been chosen as the Managing Director
is best placed to make an informed assessment of senior
executive performance and progress towards performance
targets, while the Board retains ultimate oversight for the
grant of STI awards and any necessary risk adjustments.
31
Annual Financial Report Period ending 30 June 2013 5.4 Specific measures - Managing Director
The Board set the Managing Director’s maximum STI award
for FY2013 at $400,000. This was set taking into account the
considerations outlined above and the target remuneration
mix for the Managing Director.
The Board determines the Managing Director’s STI award for
the year by reference to a mix of quantitative and qualitative
performance measures. The quantitative element, weighted
at 50 percent, focused on the Group’s achievement of
targeted cash earnings performance adjusted for financial
and risk outcomes including return on equity, cash EPS,
capital, liquidity and credit quality performance. This measure
was chosen to link the Managing Director’s performance to
improved Company performance. The qualitative element,
weighted at 50 percent, was chosen to focus on the continued
progress of the Group’s strategic priorities. The qualitative
measures are:
Measure
Description
1. Achievement of
Business Goals
Prioritising and allocating resources to the strategic
objectives and operational plans and the delivery
of benefits identified in operational plans.
2. Risk and
Compliance
3. Customer
satisfaction and
advocacy
4. People Capability
The level of risk associated with the Group’s
performance was within the Group’s risk appetite.
An effective risk culture is promoted and
maintained and progress plans are in place to
achieve Basel II advanced accreditation.
Maintaining the organisation’s customer
satisfaction and advocacy ratings at existing levels.
A pool of potential successors is available for
senior executive positions and diversity targets are
on track.
5. Scale and Rating
Advantage
Implementation of growth initiatives and
opportunities that deliver scale advantage and
support a ratings upgrade.
6. Representation of
the Organisation
Represent the organisation at Federal and State
political levels, industry forums, conferences or
other public forums.
For the 2013 financial year the Board determined that the
Managing Director met all of the above quantitative and
qualitative performance measures and, taking into account
the bonus pool established by the Board, awarded an STI
payment of $176,000.
5.5 Specific measures - other
senior executives
The performance objectives and measures for individual
executives include:
(a) Group financial and strategic performance – net
profit after tax, cash earnings per share, return
on equity, liquidity and capital ratios and arrears
performance;
(b) Business unit (team) financial and strategic
performance – achievement of division or
business unit growth and financial performance
targets, implementation of specific business
initiatives and projects in line with project targets
and timeframes, independent industry focused
customer satisfaction and advocacy rankings and
customer and community engagement initiatives;
(c) Individual contribution to team performance
– achievement of overall division or business
unit targets and business and risk objectives,
assessment of extent to which a “one-team”
culture has been promoted, assessment of
continuous improvement in processes and
procedures;
(d) Individual performance, including alignment
with corporate values and meeting performance
objectives – assessment of leadership,
management of business unit resourcing and
compliance with corporate values and code of
conduct; and
(e) Contribution to meeting risk and compliance
requirements at the Group, team and individual
level.
Risk and compliance requirements also represent a gateway
to whether a payment is made and the size of the payment.
Notwithstanding financial performance and the individual’s
contribution and performance, if the individual, team or Group
does not meet or only partially meets risk and compliance
requirements, no award or a reduced award may be made.
The measures include compliance with risk management and
operational policies and procedures.
32
6. LTI specific measures and conditions
6.1 Managing Director
The Managing Director’s long term incentive arrangements
were set in 2009. Shareholders approved an issue of five
equal annual parcels of performance shares to the Managing
Director at the 2009 AGM, with the performance periods
measured over one to five years (the final performance period
ends 30 June 2014). Each tranche comprises two components
or grants:
(a) Grant A - 50 percent of each annual tranche is subject
to an EPS gateway hurdle, requiring an increase in
the cash EPS performance of the Company for the
performance period. If that hurdle is met, the grant is
then subject to a TSR performance hurdle.
(b) Grant B - The other 50 percent of each annual tranche
is subject to continuing service with the Company.
The vested shares are subject to a dealing restriction and the
Managing Director is not entitled to sell, transfer or otherwise
deal with the shares until the later of two years after the end
of the tranche’s performance period and the date specified
in the offer. In setting the five year performance period (and
the additional dealing restriction) the Board took into account
the initial five year term of the Managing Director’s contract
(July 2009 – July 2014) and the importance of rewarding the
Managing Director for taking a longer-term perspective on the
Company’s progress and performance.
In setting the remuneration value of the entitlement, the Board
included a component that was subject to continued service
with the Company. This took into account the moderate
market setting of the Managing Director’s remuneration. It
was intended to provide the Managing Director with a further
ownership stake in the Company aligned with shareholder
interests. This component represents a deferred part of
the Managing Director’s fixed reward linked to the long term
performance of Company and the interests of shareholders.
The performance shares were issued at market price to the
value of $5 million (representing an annualised amount over
each of the five years of $1 million). The market price was
based on the volume weighted average price of the Company’s
shares traded on the ASX for the 5 days before 1 July 2009
(being $6.56). The vesting of the performance shares in Grant
A is subject to a gateway cash EPS hurdle. The gateway hurdle
will be met if there is an increase in the Company’s cash EPS
performance during the financial year immediately before
vesting for each tranche (ie the final year of the performance
period for that tranche).
The second performance condition is based on the Company’s
market relative TSR performance over the performance period.
To the extent that the performance conditions attaching to
performance shares granted under the plan are not satisfied
at the end of the relevant tranche’s performance period, the
performance shares that do not vest will be carried forward
and retested. Performance shares that do not vest will be
treated as forming part of the following tranche and will be
tested together with other performance shares at the end of
the following tranche’s performance period.
The Board believes that retesting in these circumstances is
appropriate because it ensures that senior executives are
not disadvantaged by short-term average performance over a
longer-term period of strong performance. Having regard to the
service and performance conditions, the potential minimum
value is nil.
The maximum number of shares that may be acquired by the
Managing Director is equal to the number of performance
shares issued, being 762,190. Performance shares granted to
the Managing Director under the plan vest in accordance with
the following table provided the cash EPS gateway condition
has been met.
Company’s TSR ranking against
TSR of peer group
Percentage of performance
shares that vest
TSR below 50th percentile
TSR between 50th percentile
and 75th percentile
TSR above 75th percentile
Nil
65%
100%
33
Annual Financial Report Period ending 30 June 2013 The Managing Director is entitled to vote and to receive any
dividend, bonus issue, return of capital or other distribution
made in respect of shares allocated on vesting of the
performance shares. Dividends paid on vested performance
shares are reinvested into shares in the Company (less an
amount distributed to the Managing Director to meet tax
obligations on the dividends) and are held in trust on the
same terms as the performance shares during the dealing
restriction period. Following is a summary of the grants and
vesting results to date:
Performance
shares
(number)
Fair value
Performance period
Outcome to date
Tranche 1
Grant A 10%
76,219
Grant B 10%
76,219
Tranche 2
Grant A 10%
76,219
Grant B 10%
76,219
Tranche 3
Grant A 10%
76,219
Grant B 10%
76,219
Tranche 4
Grant A 10%
76,219
Grant B 10%
76,219
Tranche 5
Grant A 10%
76,219
Grant B 10%
76,219
$7.19
$8.56
$6.61
$8.19
$6.19
$7.83
$5.70
$7.50
$5.02
$7.17
1 year (1 July 2009
to 30 June 2010)
No of shares vested: 125,761
Grant A – 49, 542
Grant B – 76, 219
Value at time of vesting: $8.18 per share
No of shares carried into next tranche: 26,677 (from Grant A)
2 years (1 July 2009
to 30 June 2011)
No of shares vested: 143,102
Grant A – 66,883
Grant B – 76, 219
Value at vesting time: $8.86
No of shares carried into next tranche: 36,013 (from Grant A)
3 years (1 July 2009
to 30 June 2012)
No of shares vested: 76,219
Grant A – Nil
Grant B – 76, 219
Value at vesting time: $7.30
No of shares carried into next tranche: 112,232 (from Grant A)
4 years (1 July 2009
to 30 June 2013)
No of shares vested: 198,712
Grant A – 122,493
Grant B – 76, 219
Value at vesting time: $10.07
No of shares carried into next tranche: 65,958 (from Grant A)
5 years (1 July 2009
to 30 June 2014)
n/a
34
6.2 Other senior executives
The Board has implemented a new LTI for other senior
executives. Commencing in the 2013 financial year, other
senior executives receive annual LTI grants of performance
shares (rather than the previous multi-tranche grants every 3
years). The first annual LTI grant was made in August 2012 as
a single tranche with a four year performance period.
The four year performance period will consist of a 12 month
initial performance period for EPS testing (1 July 2012 to 30
June 2013) and a three year performance period for relative
TSR testing (1 July 2013 to 30 June 2016).
> EPS hurdle: The grant will be reduced by 50 percent
at the end of the initial performance period if the cash
earnings per share are not equal to or better than the
cash earnings per share for the previous year.
> TSR hurdle: During the 3 year TSR performance
period, vesting of the performance shares (as
adjusted for the EPS performance hurdle) will be
conditional on TSR being at least equal to the
median performance of a peer group consisting of
the ASX100 companies (excluding property trusts
and resources). Median performance will result in
65 percent of the performance shares vesting, with
100 percent vesting if the Company’s relative TSR
performance is 75 percent or above.
The performance shares are also subject to the senior
executive’s continued employment with the Company for the
performance period and notification from the Board whether,
and to what extent, the performance conditions have been
met including to what extent performance shares have vested.
There is no dealing restriction on vested shares.
6.3 LTI - General
Each performance share represents an entitlement to one
ordinary share in the Company. Accordingly, the maximum
number of shares that may be acquired is equal to the
number of performance shares issued (subject to the vesting
conditions being met). Performance shares are granted at no
cost to the recipient and have no exercise price.
The performance measures selected for LTI arrangements are
the Company’s cash EPS performance and TSR performance.
The EPS hurdle is used because it is a fundamental indicator
of financial performance, both internally and externally,
and links directly to the Company’s long-term objective of
growing earnings. The EPS hurdle ensures improvement in
the Company’s performance and capital efficiency is achieved
before any performance shares can vest.
The TSR hurdle is used because it aligns shareholder return
with reward for the Managing Director and senior executives
and provides a relative, external market performance
measure, having regard to the TSR performance of other
companies in a comparator group. For the purpose of the
grants under the plan, the comparator group is the ASX
100 Accumulation Index (excluding the Company, property
trusts and resources). This group was chosen because it is
frequently used by listed companies and there are insufficient
companies of comparable size in the banking or financial
services sector alone to benchmark against performance of an
industry-specific group.
The Company also has a loan-based limited recourse employee
share ownership plan (ESOP) that was open to general staff
and senior executives (including the Managing Director) and
was previously used by the Company as the long-term incentive
arrangement. Information on the ESOP, including share grants
and loan details are disclosed at Notes 37 and 39 of the
Annual Financial Report. This plan is no longer open to the
Managing Director and other senior executives.
7. Company performance
The Company announced on 19 August 2013 a statutory after-
tax profit of $352.3 million. The Company’s cash earnings
result was $348 million, a 7.7 percent increase on the
previous financial year. The cash earnings result equated to
85.4 cents per share and represents a 1.4 percent increase
on the previous financial year. Information on the Company’s
share price performance is presented below.
The performance represents a solid result in difficult trading
conditions. Consumer confidence and demand for credit remain
low and the level of competition for retail deposits remains high.
The result included improvement in a number of profitability
and efficiency measures including net profit, cash earnings, net
interest margin, dividend paid, earnings per share, return on
equity and cost to income ratio. The Company also produced
above-system asset growth across a range of portfolios.
The Company recorded an 8.1 percent increase in net interest
income to $1,027.5 million and the interest margin before
payments to Community Bank® companies and alliances
increased from 2.11 percent to 2.21 percent. Net of these
payments, interest margin increased by 8 basis points to
1.86 percent for the 12 months ended 30 June 2013. Cost
containment and efficiency has again been a major focus over
the year. Expenses before specific items increased by 3.6
percent to $779 million compared to June 2012. The cost to
income ratio was 57 percent compared to 59.1 percent at
June 2012. Further information on the Company’s operations
and performance is presented in the Review of Operations and
Operating results.
Company performance measure
Basic earnings per share (cents)
Cash earnings per share (cents)
NPAT ($m)
Cash earnings ($m)
Dividends paid (cents per share)
Share price at start of financial year
Share price at end of financial year
Absolute shareholder return
Financial year ending
June 2013
June 2012
June 2011
June 2010
June 2009
84.9
85.4
352.3
348.0
61.0
$7.41
$10.07
44%
48.6
84.2
195.0
323.0
60.0
$8.86
$7.41
(9.6%)
91.5
92.3
342.1
336.2
60.0
$8.18
$8.86
16%
67.4
83.3
242.6
291.0
58.0
$6.95
$8.18
26%
25.4
62.6
83.8
181.5
43.0
$10.93
$6.95
(32%)
35
Annual Financial Report Period ending 30 June 2013 The following graph shows the cash earnings per share over
the past year and four previous years, with the average STI
payment (as a percentage of the maximum STI) paid to senior
executives, which demonstrates the relationship between
performance and STI payments.
2009
2010
2011
2012
2013
Cash EPS (cents)
Average STI payment (as a % of maximum STI)
The following graph compares the Company’s total
shareholder return (TSR) against the ASX 100 Accumulation
Index for the past five years (explained in section 3.5.3(b)).
The ASX 100 is the comparator group against which the
Company’s TSR performance is measured for the current long
term incentive plan.
TSR BEN vs ASX Accumulation Index
s
e
v
i
t
u
c
e
x
e
r
o
i
n
e
s
o
t
d
i
a
p
I
T
S
m
u
m
i
x
a
m
f
o
e
g
a
t
n
e
c
r
e
P
The table and graph illustrates the progress in the key
performance indicators used by the Board to measure and
compare the Company’s year-on-year performance over the
past five years.
The Board determined that the criteria to establish a Short-
Term Incentive (STI) bonus pool was met for the 2013 financial
year. In addition, having regard to the Company’s financial
performance, the achievement of business objectives, the
satisfaction of compliance and risk measures and individual
performance, the Board approved STI awards to senior
executives for the year. The value of STI bonuses paid to
senior executives for the year is presented in Table 3.
The Company uses cash EPS and market relative TSR
performance as the key performance indicators for the LTI.
In relation to the Managing Director’s LTI arrangement, the
Company’s market relative TSR performance exceeded the
median for the 2013 performance period and as the EPS
gateway hurdle was also met, 65 percent of the performance
shares that are subject to these performance measures
vested. The performance shares that did not vest have been
carried forward for testing as part of the final tranche tested at
30 June 2014. The performance shares subject to the service
condition also vested for FY2013.
The LTI arrangement for other senior executives involved a
four year performance period consisting of an initial twelve
month performance period for EPS testing and a three year
performance period for relative TSR testing. The grant is to be
reduced by 50 percent at the end of the initial performance
period if the earnings per share performance is not equal to
or better than the previous year. The EPS test for the parcel
tested on 30 June 2013 was met and accordingly 100 percent
the performance shares have been carried forward for testing
over the three year TSR performance period. None of the
performance shares have vested or lapsed.
)
s
t
n
e
C
(
S
P
E
h
s
a
C
100
90
80
70
60
50
40
30
20
10
0
160
140
120
100
80
60
40
20
0
Jul-08 Jan-09 Jul-09 Jan-10
Jul-10
Jan-11
Jul-11
Jan-12 Jul-12 Jan-13
Jul-13
Total return basis index July 2008 = 100 (source: Bloomberg)
BEN
ASX 100 AI
36
8. Proposed changes to Managing
Director’s remuneration
Earlier this year, the Company announced that the Managing
Director’s contract had been extended by two years, from
2014 to 2016. The LTI granted to the Managing Director in
2009 completes at the end of the 2014 financial year.
From 1 July 2014 the Board is seeking to align the Managing
Director’s arrangements with the deferred base remuneration
and LTI arrangement for other senior executives.
The Board will seek shareholder approval at the 2013 Annual
General Meeting for proposed equity grants to the Managing
Director under the Employee Salary Sacrifice, Deferred Share
and Performance Share Plan for the two year contract extension.
The total number of deferred shares and performance shares
to be granted for each additional year of the contract is the
same number of performance shares that were granted to the
Managing Director under each annual tranche for the current LTI.
It is proposed that 152,438 deferred shares will be granted
as deferred base pay. The deferred shares will be issued
at no cost and a nil exercise price. The deferred shares will
be subject to a two year continued service condition and a
risk adjustment condition. An additional one year dealing
restriction will also apply to vested deferred shares. The
deferred shares will be beneficially owned by the Managing
Director from the grant date, but will be held on trust by the
plan trustee for the three year service and restriction period.
It is proposed that 152,438 performance shares in two
tranches will be granted as set out below. Each tranche of
the performance share grant will be subject to a three year
performance period consisting of a twelve month performance
period for cash EPS testing and a three year performance
period for market relative TSR testing. The details of the
proposed grants including terms and conditions will be
included in the 2013 Notice of Annual General Meeting.
Tranche 1
Tranche 2
Number of
Performance Shares
1st Performance
Period (EPS Measure)
2nd Performance
Period (TSR Measure)
Service Condition
Dealing Restriction
76,219
76,219
30.06.2014 –
30.06.2015
30.06.2015 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2016 -
01.07.2017
01.07.2016 -
01.07.2017
9. Senior executive
termination arrangements
The remuneration and other terms of employment for senior
executives are contained in contracts. The material terms
of the contracts for the senior executives at the date of this
report are set out below.
Issue
Description
What is the duration of the contracts?
Fixed term of five years from 2009 (extended in 2013 to 2016), subject to the
termination provisions summarised below, and then continuing unless otherwise agreed
by the Company or Managing Director.
On-going until notice is given by either party.
What notice must be provided by a senior
executive to end the contract without cause?
12 months’ notice. No notice period required if material change in duties or
responsibilities.
Applies to
Managing Director
Senior executives (a)
Managing Director
What notice must be provided by the Company
to end the contract without cause? (b)
6 months’ notice. No notice period required if material change in duties or responsibilities. All senior executives (a)
12 months’ notice or payment in lieu.
All senior executives (a)
What payments must be made by the Company
for ending the contract without cause?
Payment of gross salary in lieu of period of notice (including payment of accrued /
unused leave entitlements calculated to end of relevant notice period).
What are notice and payment requirements if
the Company ends the contract for cause?
Termination for cause does not require a notice period. Payment of pro-rata gross salary
and benefits (including payment of accrued / unused leave entitlements) is required to
date of termination.
Senior executives
Senior executives
Are there any post-employment restraints?
12 month non-competition and non-solicitation (employees, customers and suppliers)
restriction.
Managing Director
12 month non-solicitation (employees, customers and suppliers) restriction.
Senior executives
37
(a) This does not include Mr Dennis Bice. Mr Bice is employed by the Company (over 35 years) and under his employment contract is currently entitled to 99 weeks
notice or payment in lieu.
(b) In certain circumstances, such as a substantial diminution of responsibility, the Company may be deemed to have ended the employment of a senior executive and
will be liable to pay a termination benefit as outlined at the row titled “What payments must be made by the Company for ending the contract without cause”.
Annual Financial Report Period ending 30 June 2013 Table 1: Non-Executive Director
Remuneration Paid
The following payments were made to non-executive directors
in the 2012 and 2013 financial years.
Short-term benefits
Fees 1
Non-monetary benefits 2
Post-employment
benefits
Superannuation
contributions 3
Robert Johanson 5 (Chairman)
Kevin Abrahamson 4
Jenny Dawson 5
Jim Hazel 5
Jacquie Hey 4
Robert Hubbard 4
David Matthews 5
Terry O’Dwyer 4
Deb Radford
Tony Robinson
Aggregate totals
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
$501,644
$443,763
-
$6,000
$250,000
$243,231
$245,186
$238,417
$165,000
$154,085
$37,443
-
$195,000
$188,231
$19,039
$158,231
$165,000
$158,231
$142,206
$135,437
$1,720,518
$1,725,626
$3,850
-
-
$38,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$22,794
$22,794
$26,644
$60,794
$20,619
$39,939
-
$3,960
$22,500
$21,891
$22,067
$21,458
$14,850
$13,868
$3,370
-
$17,550
$16,941
$1,713
$14,241
$14,850
$14,241
$14,850
$14,241
Total
$526,113
$483,702
-
$47,960
$272,500
$265,122
$267,253
$259,875
$179,850
$167,953
$40,813
-
$212,550
$205,172
$20,752
$172,472
$179,850
$172,472
$179,850
$172,472
$132,369
$160,780
$1,879,531
$1,947,200
1 Fee amounts include the $5,000 director contribution to the Board scholarship program for FY2012 and FY2013.
2 Represents fee sacrifice component of base director fee amount paid into superannuation.
3 Company superannuation contributions.
4 Appointments: Mr Hubbard was appointed on 2 April 2013, Ms Hey was appointed on 5 July 2011.
Retirements: Mr Abrahamson retired on 24 October 2011 and Mr O’Dwyer retired on 13 August 2012.
5 Subsidiary fees: Fees were paid by Rural Bank Limited to Mr Johanson of $70,186 for FY2013 ($70,186 for FY2012) and Mr Hazel of $80,186 for FY2013 ($80,186
for FY2012). The fees paid to Ms Dawson for FY2013 and FY2012 include an additional fee of $85,000 as chair of Sandhurst Trustees Ltd. The fees paid to Mr
Matthews include $30,000 for FY2012 and FY2013 for his role as Member of the Community Bank® Strategic Advisory Board. In addition, the base fee payments to
Mr Johanson include an additional $22,808 paid in lieu of the difference between the company superannuation payable at 9 percent and the current superannuation
contribution limit.
38
Table 2: Senior Executive Remuneration Paid
The remuneration paid to senior executives for the 2013 and
2012 financial years is set out in the table below.
Short-term Employee Benefits
Cash
salary 1
Cash
bonuses
(STI) 2
Non-
Monetary
benefits 3
$1,167,494
$117,333
$1,184,484
-
Senior executive
Mike Hirst
Marnie Baker
Dennis Bice
John Billington
Richard Fennell
Russell Jenkins
Tim Piper
Stella Thredgold
Andrew Watts 9
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
$479,496
$477,146
$385,654
$356,697
$407,504
$406,196
$486,679
$461,947
$466,115
$420,317
$363,114
$371,818
$296,104
$270,737
$360,297
$359,584
$31,308
$26,491
$26,894
$42,902
$6,340
$14,664
-
$66,667
-
$50,000
-
$24,000
-
$5,736
$66,667
-
$58,667
-
$44,000
-
$30,000
-
$43,333
-
$6,052
$9,898
$21,987
$42,562
$7,310
$15,431
$11,734
$6,896
$29,326
$32,016
Share-based payments 7
Super-
annuation
benefits 5
Other
long-term
benefits 6
Performance
shares 8
Deferred
shares 9
Total
$16,470
$40,000
$16,470
$22,383
$16,470
$33,826
$16,470
$15,774
$16,470
$22,339
$16,470
$22,584
$16,470
$33,815
$16,470
$23,239
$19,931
$1,006,091
$50,000
$2,416,206
$23,211
$1,068,591
$50,000
$2,403,697
$8,129
$22,603
$14,952
$295,514
$83,333
$33,332
$709,311
$894,813
$6,163
$11,302
$36,663
$515,306
$12,300
$155,267
$11,665
$588,476
-
-
-
-
$16,575
$53,334
$517,883
$179,984
$16,666
$624,356
$22,603
$289,265
$83,333
$33,332
$681,804
$816,781
$7,371
$22,603
$76,666
$675,605
($6,424)
$295,514
$26,665
$809,964
$28,885
$16,952
$58,332
$535,063
$11,030
$216,629
$20,832
$669,555
$11,878
$11,302
$38,329
$415,817
$7,850
$122,711
$13,330
$444,763
Other 4
$7,579
$10,920
$5,719
$8,584
$2,714
$4,057
-
-
-
-
$5,726
$8,746
-
-
-
-
$1,257
$1,972
$16,470
($14,909)
$16,952
$22,888
$10,447
$184,073
$54,166
$16,666
$506,892
$627,646
Aggregate totals
2013
$4,412,457
$500,667
$140,951
$22,995
$148,230
$67,448
$1,146,983
$534,156
$6,973,887
2012
$4,308,926
-
$196,596
$34,279
$236,848
$73,366
$2,807,546
$222,488
$7,880,049
1 Cash salary amounts include the net movement in the KMP’s annual leave accrual for the year.
2 These amounts represent STI cash awards to senior executives for the 2013 financial year. The cash component is expected to be paid in September 2013. In the
case of FY2012, no STI was awarded given earnings performance did not meet the minimum criteria set by the Board. Refer also to footnote 9 below for discussion on
the deferral of STI components.
3 “Non-monetary” relates to sacrifice components of KMP salary such as superannuation contributions and motor vehicle costs.
4 “Other” relates to the notional value of the interest free loan benefit provided under the Group’s employee share plans. A notional benefit is calculated using the
average outstanding loan balance and the Company’s average cost of funds. Details on loans provided to the senior executive under the employee share plans are
disclosed in the Annual Financial Report at Note 39.
5 Represents superannuation contributions made on behalf of key management personnel. The amounts represent the current superannuation contribution limit. The cash
salaries of senior executives include an additional payment in lieu of the difference between the superannuation contribution payable at 9% and the current contribution limit.
6 The amounts disclosed relate to movements in long service leave entitlement accruals.
7 In accordance with the requirements of Australian Accounting Standards, remuneration includes a proportion of the fair value of equity compensation granted or
outstanding during the year. The fair value of equity instruments which do not vest during the reporting period is calculated as at the grant date and is progressively
allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual senior executives may
ultimately realise should the equity instruments vest. The fair value of performance shares as at the date of their grant has been calculated under AASB 2 Share
based payments applying a Black-Scholes-Merton valuation method incorporating a Monte Carlo simulation option pricing model to estimate the probability of
achieving the Total Shareholder Return hurdle and the number of options and performance shares vesting. The assumptions underpinning these valuations are set out
in Table 4 of this report.
39
8 The amortised value of performance shares as a percentage of total remuneration was: M Hirst 42% (2012: 45%), M Baker 3% (2012: 34%), D Bice 2% (2012: 27%),
J Billington 3% (2012: 30%), R Fennell 3% (2012: 37%), R Jenkins 3% (2012: 38%), T Piper 3% (2012: 33%), S Thredgold 3% (2012: 28%), A Watts 3% (2012: 30%).
9 One-third of STI awards that exceed the $30,000 threshold set by the Board are paid as equity in the Company and deferred for two years. The amortised value of
the deferred STI components is included in the amounts disclosed under the “deferred share” column. The amounts included in the deferred share column for 2012
and 2013 include the deferred component of 2011 STI awards that were amortised over the deferral period (ie 2012 and 2013). The value of the deferred equity
component for 2013 will be amortised over the two year deferral period (ie 2014 and 2015).
In addition, the 2013 base remuneration for senior executives (excluding the Managing Director) included a grant of deferred shares. The amounts included in the table also
include the amortised fair value for accounting purposes of the deferred share grants in the 2013 financial year which are subject to vesting and forfeiture conditions.
Annual Financial Report Period ending 30 June 2013 Table 3: Key management personnel STI
payments FY2013
The following Short Term Incentives (STIs) were awarded to
senior executives for FY2013. The Short Term Incentives
forfeited are also set out in the table below.
Senior executive
Mike Hirst
Marnie Baker
Dennis Bice
John Billington
Richard Fennell
Russell Jenkins
Tim Piper
Stella Thredgold
Andrew Watts
Maximum award
available
STI payment
Paid as cash
Deferred into shares 1
STI payment as % of
maximum STI
% of maximum STI
payment forfeited
$400,000
$225,000
$100,000
$160,000
$225,000
$200,000
$150,000
$100,000
$150,000
$117,333
$66,667
$50,000
$24,000
$66,667
$58,667
$44,000
$30,000
$43,333
$58,667
$33,333
$25,000
-
$33,333
$29,333
$22,000
$15,000
$21,667
44.0%
44.4%
75.0%
15.0%
44.4%
44.0%
44.0%
45.0%
43.3%
56.0%
55.6%
25.0%
85.0%
55.6%
56.0%
56.0%
55.0%
56.7%
1 The allocation of deferred shares relating to STI deferral for FY2013 is expected to be completed in October 2013.
Table 4: All plans – equity valuation inputs
The following tables summarise the valuation inputs for
current equity instruments issued by the Company.
Deferred Shares
Instrument
Grant date
Issue price / Fair value 1
Exercise price
Share price at grant date
Restriction period end
Deferred Shares - STI
Deferred Base Pay
22.03.2012
31.08.2012
$7.73
$7.30
-
-
$7.56
$7.58
30.06.2013
30.06.2014
Terms & Conditions for each Grant
1 The number of shares granted as part of the STI deferral is calculated by dividing the deferred STI remuneration value by the volume weighted average closing price
of the Company’s shares for the 5 days ending on the grant dates. In the case of deferred base remuneration deferred share grants, the number of shares granted is
calculated by dividing the deferred remuneration value by the volume weighted average closing price of the Company’s shares for the 5 days ended 30 June 2012.
Performance shares
Instrument
Grant date
Fair value Exercise price
interest rate Dividend yield
Risk-free
Expected
volatility
Expected life
Performance
period end
Terms & Conditions for each Grant
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
31.08.2012
$7.19
$8.56
$6.61
$8.19
$6.19
$7.83
$5.70
$7.50
$5.02
$7.17
$3.30
40
-
-
-
-
-
-
-
-
-
-
-
4.25%
4.25%
4.47%
4.47%
4.77%
4.77%
5.02%
5.02%
5.15%
5.15%
2.49%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
6.5%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
25%
1 year
1 year
30.06.2010
30.06.2010
2 years
30.06.2011
2 years
30.06.2011
3 years
30.06.2012
3 years
30.06.2012
4 years
30.06.2013
4 years
30.06.2013
5 years
30.06.2014
5 years
30.06.2014
4 years
30.06.2016
Table 5: All plans – grants of instruments
FY2013
The following terms apply to current equity instruments issued
by the Company.
Senior Executive
Instrument
Number of
instruments
granted (a) (b)
Future years
payable
Maximum value of
grant (c)
Vesting / exercise
date
Mike Hirst
Performance Shares
762,190
2009 - 2014
$5,332,283
Deferred Shares STI
Marnie Baker
Performance Shares
Deferred Base Pay
Deferred Shares STI
Dennis Bice
Performance Shares
Deferred Base Pay
Deferred Shares STI
John Billington
Performance Shares
Deferred Base Pay
Deferred Shares STI
Richard Fennell
Performance Shares
Deferred Base Pay
Deferred Shares STI
Russell Jenkins
Performance Shares
Deferred Base Pay
Deferred Shares STI
Tim Piper
Performance Shares
Deferred Base Pay
Deferred Shares STI
Stella Thredgold
Performance Shares
Deferred Base Pay
Deferred Shares STI
Andrew Watts
Performance Shares
Deferred Base Pay
Deferred Shares STI
12,936
27,397
13,699
8,624
13,699
6,849
3,018
20,091
10,046
4,312
27,397
13,699
8,624
27,397
13,699
6,899
20,548
10,274
5,390
13,699
6,849
3,449
20,548
10,274
4,312
2013
2016
2014
2013
2016
2014
2013
2016
2014
2013
2016
2014
2013
2016
2014
2013
2016
2014
2013
2016
2014
2013
2016
2014
2013
$100,000
$200,000
$100,000
$66,667
$100,000
$50,000
$23,333
$146,667
$73,333
$33,333
$200,000
$100,000
$66,667
$200,000
$100,000
$53,333
$150,000
$75,000
$41,667
$100,000
$50,000
$26,667
$150,000
$75,000
$33,333
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
Expiry date
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
30.06.2016
30.06.2014
30.06.2013
(a) The grants made to Senior Executives in FY2013 constituted 100% of the grants available for the year and were made on the terms described at Sections 4 and 6.
The value at grant date of deferred base pay grants (excluding STI grants) and performance share grants to senior executives (excluding the Managing Director) are
determined by the Managing Director and approved by the Board. The number of deferred shares and performance shares allocated to recipients in the 2013 year
were calculated using the volume weighted average closing price of the Company’s shares for the 5 trading days before 30 June 2012 ($7.30).
(b) The performance shares vest subject to performance and continued service over the period 1 July 2009 to 30 June 2014 for the Managing Director and 1 July 2012
to 30 June 2016 for other Senior Executives. The exercise price for the performance shares and deferred shares is nil.
(c) In relation to the Managing Director, the maximum value of the performance shares grants have been estimated based on the fair values presented at Table 4. In
relation to other senior executives, the maximum value of the performance share and deferred base pay grants have been estimated based on the volume weighted
average closing price of the Company’s shares for the five trading days before the grant date (being $7.30 for the deferred base pay grants and $7.73 for STI deferred
shares). The fair value of the performance shares is $3.30. The minimum total value of the grants, if the applicable performance and / or service conditions are not
met is nil.
41
Annual Financial Report Period ending 30 June 2013 Table 6: All plans
- number of instruments FY2013
The table below sets out the number and value of equity
instruments that were granted by the Company including
details of instruments that vested, exercised or forfeited/
lapsed during FY2013.
Senior executive
Instrument
Grant date
Granted
Exercised /
Vested
Forfeited/
Lapsed
Granted 2
Exercised /
Vested 3
Forfeited/
Lapsed 4
Movements in number
Movements in value 1
Mike Hirst
Performance Shares
Deferred Shares - STI
Marnie Baker
Performance Shares
Deferred Base Pay
Deferred Shares - STI
Dennis Bice
Performance Shares
Deferred Base Pay
Deferred Shares - STI
John Billington
Performance Shares
Deferred Base Pay
Deferred Shares - STI
Richard Fennell
Performance Shares
Deferred Base Pay
Deferred Shares - STI
Russell Jenkins
Performance Shares
Deferred Base Pay
Deferred Shares - STI
Tim Piper
Performance Shares
Deferred Base Pay
Deferred Shares - STI
Stella Thredgold
Performance Shares
Deferred Base Pay
Deferred Shares - STI
Andrew Watts
Performance Shares
Deferred Base Pay
Deferred Shares - STI
11.12.2009
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
31.08.2012
31.08.2012
22.03.2012
-
-
198,712
12,936
27,397
13,699
-
13,699
6,849
-
20,091
10,046
-
27,397
13,699
-
27,397
13,699
-
-
8,624
-
-
3,018
-
-
4,312
-
-
8,624
-
-
-
6,899
20,548
10,274
-
-
-
5,390
13,699
6,849
-
-
-
3,449
20,548
10,274
-
-
-
4,312
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$1,318,937
$100,000
$200,000
$100,000
-
-
-
$66,667
$100,000
$50,000
-
-
-
$23,333
$146,667
$73,333
-
-
-
$33,333
$200,000
$100,000
-
-
-
$66,667
$200,000
$100,000
-
-
-
$53,333
$150,000
$75,000
-
-
-
$41,667
$100,000
$50,000
-
-
-
$26,667
$150,000
$75,000
-
-
-
$33,333
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 For the Managing Director, the percentage of performance shares that vested during the year was 65% (Grants A) and 100% (Grant B). The performance shares that
did not vest for Grant A will be carried forward and retested at 30 June 2014. For other senior executives, the percentage of performance shares and deferred shares
that vested, or were forfeited, during the year was nil as the performance shares and deferred shares will be tested over future periods. The percentage of deferred
shares granted in connection with STI equity deferral for FY 2011 that vested during the year was 100%.
2 The value of the performance shares and deferred shares at the grant date is based on the volume weighted average closing price of the Company’s shares for
the five trading days before 1 July 2012 (being $7.30). The fair value of the performance shares is $3.30. The minimum total value of the grants, if the applicable
performance and / or service conditions are not met, is nil.
3 The number of vested performance shares for the Managing Director comprises performance shares that were carried forward from tranches one, two and three
that were eligible for re-testing at 30 June 2013 (and which vested) together with performance shares from tranche four that were tested at 30 June 2013 and which
vested. The value of the vested performance shares is measured using the fair values applicable to the tranche of performance shares that vested. The applicable
fair values are presented at Table 4. As each performance share represents an entitlement to one ordinary share in the Company, the number of ordinary shares
that will be allocated to the Managing Director for vested performance shares is the same as the number of vested performance shares (ie 198,712 shares). Further
information on the number of ordinary shares is presented at Note 39 of the Annual Financial Report.
42
The value of vested STI deferred shares is based on the Company’s volume weighted closing share price on the date of testing (there is no exercise price), being $7.73. The
instruments are scheduled to be allocated in September 2013. The value of the vested performance shares is estimated using the fair value of the performance shares.
4 The value of each instrument on the date it lapses or is forfeited is calculated using the fair value of the instrument. Performance shares and deferred shares lapse
where the applicable performance or service condition are not satisfied. As the performance shares and deferred shares only vest on satisfaction of performance
and / or service conditions which are to be tested in future financial periods, none of the senior executive forfeited performance shares or deferred shares during the
2013 financial year.
Meetings of directors
Information on Board and committee meeting attendance for
the year is presented in the Corporate Governance Statement.
Insurance of directors and officers
During or since the financial year end, the Company has paid
premiums to insure certain officers of the company and its
related bodies corporate. The officers of the Company covered
by the insurance policy include the Company's directors, the
secretary and directors or secretaries of controlled entities
who are not also directors or secretaries of Bendigo and
Adelaide Bank Limited. The insurance does not provide cover
for the independent auditor of the Company or of a related
body corporate of the Company.
Disclosure of the nature of the liability and the amount of
the premium is prohibited by the confidentiality clause of the
contract of insurance. The Company has not provided any
insurance for an independent auditor of the Company or a
related body corporate.
Indemnification of officers
The constitution stipulates that the Company is to indemnify,
to the extent permitted by law, each officer of the Company
against liabilities (including costs, damages and expenses
incurred in defending any proceedings or appearing before any
court, tribunal, government authority or other body) incurred by
an officer or employee in, or arising out of the conduct of the
business of the Company or arising out of the discharge of the
officer's or employee's duties.
The Company has entered into deeds providing for indemnity,
insurance and access to documents for each director who
held office during the year. The Company has also entered into
deeds of indemnity with its senior executives and officers of
controlled entities. The deeds require the Company to indemnify,
to the extent permitted by law, the person against all liabilities
(including costs, damages and expenses incurred in defending
any proceedings or appearing before any court, tribunal,
government authority or other body) incurred in, or arising out of
conduct of the business of the Company, an associated entity of
the Company or in the discharge of their duties.
Directors' Interests in Equity
The relevant interest of each director (in accordance with section
205G of the Corporations Act 2001) in shares of the company or
a related body corporate at the date of this report is as follows:
Environmental regulation
The consolidated entity's operations are not subject to
any significant environmental regulations under either
Commonwealth or State legislation. However, the Board
believes that the consolidated entity has adequate systems in
place for the management of its environmental requirements
and is not aware of any breach of those environmental
requirements as they apply to the consolidated entity.
Company Secretary
William Conlan, LL.B (Melb)
Mr Conlan was appointed as company secretary of Bendigo
and Adelaide Bank Limited in 2011, having worked with the
Company for almost 10 years in strategy, capital management
and compliance. Mr Conlan is a practising lawyer and, prior
to commencing employment with the Bank, was a lawyer in
private practice in Melbourne.
Review of operations and operating results
Information on the Company’s operations, financial position,
business strategies, material business risks and future
prospects is presented in the Operating and Financial Review
Disclosures which consist of the Chairman’s and Managing
Director’s messages and the Review of Operations and
Operating Results section of the Annual Financial Report.
Auditor independence and non-audit services
The Company’s Audit Committee has conducted an
assessment of the independence of the external auditor
for the year ended 30 June 2013. The assessment was
conducted on the basis of the Company’s audit independence
policy and the requirements of the Corporations Act 2001. The
assessment included a review of non-audit services provided
by the auditor and an assessment of the independence
declaration issued by the external auditor for the year ended
30 June 2013. The Audit Committee's assessment confirmed
that the independence requirements have been met. The Audit
Committee’s assessment was accepted by the full Board. A
copy of the auditor’s independence declaration is provided at
the end of this Directors’ Report.
Director
Ordinary shares
Preference shares
Performance Shares
Robert Johanson
Mike Hirst
Jenny Dawson
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
197,996
660,811 1
26,751
15,420
3,338
4,500
11,407
1,900
10,000
1,000
-
100
-
250
-
-
-
-
218,397
-
-
-
-
-
-
Sandhurst Industrial
Share Fund (Units) 2
146,691
-
-
-
-
-
-
-
1 Includes 50,000 shares issued under the Bendigo Employee Share Ownership Plan.
2 Relevant interests in managed investment schemes made available by a subsidiary of the Company.
Sandhurst
Professional IML
Industrial Share
Fund (Units) 3
-
-
56,301
-
-
-
-
-
Bendigo Growth
Wholesale Fund
(Units)
118,555
43
-
-
-
-
-
-
-
Annual Financial Report Period ending 30 June 2013 Non-audit services
Non-audit services are those services paid or payable to the
Group’s external auditor, Ernst & Young (Australia), which do
not relate to Group statutory audit engagements.
Details of all non-audit services for the year ended 30 June 2013:
(a) Audit related fees (Regulatory)
In its capacity as the Group’s external auditor, Ernst & Young
are periodically engaged to provide assurance services to the
Group in accordance with Australian Auditing Standards. All
assignments are subject to engagement letters in accordance
with Australian Auditing Standards. They include audit services
required for regulatory and prudential purposes and the
amounts shown are GST exclusive.
Service Category
APRA Review
AFSL audit and APS 310 audit
Comfort Letter – Euro Medium Term Note Program
Government Guarantee Review
Convertible preference share issue advice
AFSL audit and APS 310 audit
Sub total – Audit related fees (Regulatory)
(b) Audit related fees (Non-regulatory)
In its capacity as the Group’s external auditor, Ernst &
Young are periodically engaged to provide assurance and
related services not required by statute or regulation but are
reasonably related to the performance of the audit or review
of the Group's financial statements which are traditionally
performed by the external auditor. These services include
assurance of the Group's credit assessments and reviews
of the Group's acquisition accounting and tax consolidation
processes. The amounts shown are GST exclusive.
Service Category
EMTN audit procedures
Sub total – Audit related fees (Non-regulatory)
(c) Non audit related fees
Service
Tax advice
Professional services
Sub total – non audit related fees
Total – non audit services
Fees
$
216,300
199,924
29,252
2,060
118,450
54,332
620,318
Fees
$
3,502
3,502
Fees
$
125,705
50,470
176,175
799,995
44
The Audit Committee has reviewed the nature and scope of the
above non-audit services provided by the external auditor. In
doing so, the Audit Committee has assessed that the provision
of those services is compatible with the general standard of
independence for auditors imposed by the Corporations Act.
This assessment was made on the basis that the non-audit
services performed did not represent the performance
of management functions or the making of management
decisions, nor were the dollar amounts of the non-audit
fees considered sufficient to impair the external auditor's
independence. As noted previously, this Audit Committee's
assessment has been reviewed and accepted by the full Board.
Entity
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
Rural Bank Limited
Bendigo and Adelaide Bank Limited
Entity
Entity
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
This Directors Report is signed in accordance with a resolution of the Board of directors
Robert Johanson
Chairman
Mike Hirst
Managing Director
3 September 2013
45
Annual Financial Report Period ending 30 June 2013 Corporate governance
Introduction
Bendigo and Adelaide Bank is committed to high standards
of corporate governance. This commitment applies to the
Company’s relationship with its shareholders, customers,
employees, suppliers, regulators and the communities in
which we operate.
The governance processes and practices adopted by the
Company take into account APRA’s standards and guidance
and the governance recommendations set by the ASX
Corporate Governance Council (ASX Recommendations).
A summary of the ASX Recommendations with reference
to the Company’s governance practices is available on
the Company’s website – www.bendigoadelaide.com.au.
The governance documents referred to below can also be
accessed from this website.
Our Vision
Our Strategy
> Our strength comes from our focus on the
success of our customers, people, partners and
communities
> We take a 100 year view of the business
> We listen
The following provides an overview of the Company’s corporate
governance structure.
> We respect everyone’s choice, needs and objectives
> We partner for sustainable long term outcomes
Board
Committees
Board
Managing
Director
Board
Committees
Audit
Technology
& Change
Executive
Committee
Credit
Risk
Governance
& HR
Note: ALMAC is the Asset Liability Management Committee.
Board role and skills
The Board charter sets out the responsibilities of the Board.
A copy of the charter is available on the Company’s website.
Except in relation to any matters reserved to the Board under
the charter, the day-to-day management of the Company and
its operations is delegated to management.
The Company appoints directors with appropriate skills and
experience to contribute to the effectiveness of the Board, to
provide leadership and contribute to the success of the Company.
This involves taking into account the Company’s strategy (set
out above), which includes building a long term sustainable
business focusing on the success of our customers, people,
partners and communities. This delivers prosperity for
stakeholders, which in turn creates prosperity for the Company
and its shareholders.
The Board regularly reviews the necessary skills, knowledge
and experience represented on the Board to deliver the
strategy of the Group and to take into account the benefits
to the organisation of having Board representation relating to
strategic points of difference.
The Board uses a skills matrix to assist with the review. The
criteria from the matrix are as follows;
46
Management
Committees
Credit Risk
ALMAC
Operational
Risk
Industry
1. Banking industry
Note, this includes the following:
> Retail banking and distribution
> Capital management, including capital and
financial markets and treasury
> Regulation, including prudential regulation
2. Wealth management industry
Subject matter specific
3. Governance
4. Accounting and financial reporting
5.
6.
Legal
Technology and telecommunications
7. Corporate finance/investment banking
8. Risk management
General
9. Business
10. Listed Company Board
11. Retailing
Note, this includes sales, branding and marketing
12. Understanding of regional and community issues
A director may obtain independent professional advice at the
reasonable cost to the Company with approval of the Chairman
of the Board (or, if the chair refuses to give approval, the Board).
Directors
The names of the Company's Directors in office during the
financial year are as follows. Directors were in office for the
financial year unless otherwise stated.
Robert Johanson (Chairman)
Mike Hirst (Managing Director)
Jenny Dawson
Jim Hazel
Jacqueline Hey
Robert Hubbard (appointed 2 April 2013)
David Matthews
Terry O’Dwyer (retired on 13 August 2012)
Deb Radford
Tony Robinson
Particulars of the skills, experience, expertise and
responsibilities of the directors at the date of this report are
set out in the Directors’ Report in the Annual Financial Report.
Independence
The Board believes that the exercise of independent judgment
by directors is a crucial feature of corporate governance.
The Board policy sets out the test for the purpose of
assessing the independence of non-executive directors as
follows: “An independent director is a director who is free from
any material business or other association – including those
arising out of a substantial shareholding, involvement in past
management or as a supplier, customer or advisor - that could
interfere with the exercise of their independent judgment”. In
deciding materiality, the quantitative materiality thresholds in
Accounting Standard AASB 1031 are taken into account, as
well as qualitative materiality factors.
The Chairman of the Company, Mr Johanson, is responsible
for leading the Board and ensuring that it is operating to the
appropriate governance standards. Mr Johanson has been
Chairman of the Company since 2006 and a non-executive
director since 1988.
Mr Johanson is a director and part-time employee, but no
longer a shareholder, of Grant Samuel Group Pty Ltd (and
subsidiaries), which is one of a range of firms which may be
engaged to provide corporate advisory services to the Company.
Grant Samuel was not engaged to provide advisory services
to the Company during the reporting period and accordingly no
fees were paid to Grant Samuel for the financial year (fees paid
FY2012: $280,000). The Board has an established protocol
for the engagement of Grant Samuel. Information of the
appointment process and involvement of Mr Johanson has been
set out in prior year corporate governance reports.
The Board has assessed each non-executive director as
independent.
Board composition, renewal and re-election
It is the Board’s view that, collectively, the Bank’s directors
need to have appropriate skills, knowledge and experience
to provide leadership and contribute to the effectiveness of
the Board and the Bank’s success. The Board reviews its
mix of skills, knowledge and experience regularly, using a
skills matrix. These reviews include consideration of future
succession plans for Board members, as well as any additional
areas of expertise that may be required by the Board.
The Board considers gender, geographic and other diversity to
be important. It aims to maintain female representation of at
least one-third of non-executive directors on the Board, and
also aims to have a diversity of geographic representation in
its composition.
The Board is committed to a process of orderly renewal,
aiming for a blend of tenure and experience. The Board
considers that there are significant benefits in retaining non-
executive directors who have served on the Bank’s Board
through economic cycles. Such experience brings a depth of
perspective and a corporate memory that is of particular value
to the organisation.
The Board’s commitment to renewal is evidenced by the recent
changes in its composition. There are now five directors who
have served on the Board for less than five years (including
the Managing Director), two directors who have served seven
years and two who have served more than 10 years.
The Board discusses succession planning for its members
and the chair regularly and robustly. Succession planning is
an ongoing process and there are a number of well qualified
internal candidates for the role of Chair.
All new directors are provided with an induction program for
the Board (and relevant committees) to familiarise directors
with the Company’s business and strategy.
A director seeking re-election at the end of their term must
provide a statement to the Board setting out a case for their
re-election. In making a decision whether to recommend the
Chairman and any other non-executive director for re-election,
the Board takes into account their contribution, the annual
performance assessment, the skills and experience needed
on the Board and the skills and experience of the current
Board. The decision whether to recommend the Chairman, or
any other non-executive director, for re-election is made in that
person’s absence.
Board performance
The following Board performance review process applies.
> Board as a whole – annual review: An internal
review is conducted by the Chair of the Board.
This involves questionnaires completed by
directors and executives, as well as individual
discussions with the Chair.
> Individual directors – annual review: This is
conducted by the Chair of the Board.
> Chair of Board – annual review: This is conducted
by the Board as a whole, led by a director
nominated by the Board.
> Committees – bi-annual review: This is bi-annual
to enable a greater focus on the Board as a whole
and individual director assessment in other years.
The review is lead by the Chair of each committee
and discussed in a Board meeting.
47
Annual Financial Report Period ending 30 June 2013 Reviews of the Board as a whole, individual directors and the
chair of the Board took place during the year in accordance
with the process described above. The next committee
performance review is scheduled for the 2013/2014
financial year.
The Audit Committee assists the Board in relation to
the external audit function, including prudential audit
requirements, the assurance function (internal audit & credit
risk review), statutory financial and APRA reporting and the
Group’s internal control framework.
The review of the Board and committees involves consideration
of performance against the charters and goals and objectives
set at the start of the financial year. The Board review also
considers the structure and role of the Board (including in
strategy and planning), culture and relationships, meeting
processes and organisational performance monitoring.
Last year the Board engaged an external consultant to assist
in relation to the Board performance evaluation process and
expects to continue with this practice periodically.
Board committees
The Board is assisted in discharging its responsibilities by the
five Board committees described below. These committees
have been in place for the full financial year. The membership
of the committees has been structured so as to spread
responsibility and make best use of the range of skills across
the Board.
Membership of the various committees is also designed for
sufficient overlap of membership to ensure that implications of
matters raised in a committee are not missed in another.
The Board receives the minutes of all committees at the
following Board meeting.
A committee can seek information from any group employee or
any other source and meet with employees and third parties
without the presence of management. A committee may
consult with a professional adviser or expert at the cost of the
Company, if the committee considers it necessary to carry out
its responsibilities.
A summary of the role of each of the Board committees is set
out below.
Overview of meetings and member attendance
The Governance and HR Committee assists the Board in
relation to nomination matters (including Board composition
and succession planning), Board performance, remuneration
(including executive remuneration policy, approval of
remuneration consultants and recommendation of
remuneration arrangements for the Managing Director and
senior executives to the Board), key human resource policies,
(including diversity and occupational health and safety) and
corporate governance matters generally.
The Risk Committee has oversight of risk, including the
establishment, implementation, review and monitoring of risk
management systems and policies for balance sheet and
off-balance sheet risk (including market and liquidity) and
operational risk (including regulatory compliance, financial
crimes, anti-money laundering and counter terrorism financing
and business continuity).
The Credit Committee has oversight of the establishment,
implementation, review and monitoring of credit risk
management systems and policies, taking into account the
risk appetite of the Group, the overall business strategy and
management expertise.
The Technology and Change Committee has oversight
and monitoring of the Group’s technology governance and
transformational or change projects within the Company.
The committee monitors the status of the performance and
progress of major change projects and the major activities and
priorities for the technology services division.
Board remuneration
The remuneration policy and information about remuneration
paid is set out in the remuneration report in the Directors’
Report. There are no schemes for retirement benefits, other
than superannuation, for non-executive directors.
Director
Meetings during
reporting period
Robert Johanson
Jenny Dawson
Jim Hazel
Jacquie Hey
Mike Hirst
Robert Hubbard 1
David Matthews
Terry O’Dwyer 2
Deb Radford
Tony Robinson
48
Board
15
Audit
8
Credit
12
Risk
Governance & HR
Technology &
Change
4
4
7
Committees
A
15
15
15
15
15
2
15
2
15
15
B
14
15
15
15
14
2
15
2
15
15
A
8
8
1
8
1
B
8
8
1
8
1
A
12
12
12
12
B
11
12
12
12
A
4
4
1
1
4
B
4
4
1
1
4
A
4
4
4
4
B
4
4
4
4
A
7
7
1
7
B
7
7
1
7
A = Number eligible to attend
B = Number attended
1 Mr R Hubbard was appointed to the Board on 2 April 2013
2 Mr T O’Dwyer retired from the Board in August 2012
Code of conduct and reporting of concerns
The Company’s corporate values provide a framework to guide
interactions within the Group, with customers, shareholders,
suppliers and the community. The values are teamwork,
integrity, performance, engagement, leadership and passion.
These values have been incorporated in a code of conduct
that has been endorsed by the executive committee and
adopted by the Board.
The code of conduct is a statement of the Group’s corporate
ethics and philosophy and underpins business decisions,
actions and behaviour. It aims to make sure that high standards
of corporate and individual behaviour are observed in conducting
the business, and provides support for those behaviours.
The code provides guidelines for directors and staff, so that
there is a common understanding of the values and expected
standards of behaviour, including in relation to conflicts of
interest, use of information and position and confidentiality.
More detailed policies exist that deal specifically with various
aspects of the code.
In addition, the reporting of concerns policy provides a
reference point for reporting concerns, including on an
anonymous basis. This includes a concern, a grievance, and
report of a suspected breach of law or group policy (including
any breach of the code of conduct). The reporting of concerns
policy also sets out the protection provided for employees who
raise concerns in good faith.
Fit and proper
In addition, all directors and senior managers must meet fit
and proper standards under the Company’s fit and proper
policy, which addresses the requirements of APRA’s Prudential
Standard CPS520 “Fit and Proper”.
Under the policy, all directors and senior managers need to
have appropriate skills, experience and knowledge, and act
with honesty and integrity. Directors and senior managers are
assessed before appointment and then annually. All directors
and senior managers have been assessed as fit and proper.
Continuous disclosure and communications
The continuous disclosure policy assists the Company in
making sure that all price sensitive information is disclosed
to Australian Securities Exchange (ASX) under the continuous
disclosure requirements of ASX Listing Rules and the
Corporations Act.
The Board meeting agenda includes continuous disclosure as a
standing item for Board consideration. The Managing Director,
chair and executive officers are responsible for identifying
matters or transactions arising between Board meetings which
require disclosure under the ASX Listing Rules.
All announcements to be lodged with ASX must first be
approved by an authorised officer, generally the Managing
Director, before release. The Company Secretary is
responsible for coordinating communications with ASX and for
having systems in place to make sure that information is not
released to external parties until confirmation of lodgement is
received from ASX.
The communications policy provides clear authorities and
protocols for all communications with parties external to the
Company, including investors, ASX, regulatory authorities,
media and brokers. It has also been designed to complement
the continuous disclosure policy, to make sure that
information flows are controlled, and to reduce the likelihood
of inadvertent disclosures outside the continuous disclosure
reporting regime. In addition to all direct communications sent
to individual shareholders, the Company will communicate
publicly with its shareholders by posting information in the
corporate governance section on the Company’s website.
Share trading
The trading policy imposes restrictions on trading in the
Company’s securities by directors, members of the executive
committee and other designated employees (who may have
access to price sensitive information). A black-out period is
imposed for the 10 weeks leading up to each of the half-year
and full-year announcements to ASX.
The policy also requires these employees and officers to tell
the Company before and after trading and this information is
reported to the Board. In addition, all employees and directors
are prohibited from trading if in possession of price sensitive
information.
The policy prohibits directors, members of the executive
committee and other designated employees from using their
Company securities as part of a margin loan portfolio.
The policy also prohibits a participant in an executive incentive
plan from entering into a transaction designed to remove the
“at risk” element of an entitlement under the plan (a) before
it vests, and (b) after it vests, until any restriction period
imposed by the Board ends or has been lifted.
Overview of diversity
The Company has a diversity policy that is founded on the
Company’s code of conduct and corporate values. As stated in
the policy:
"Staff: We advocate an inclusive and welcoming workplace. As
an employer, we aim to offer an environment where people are
treated with respect, feel valued, and can achieve success,
both for the individual and the organisation. We also recognise
the importance of an appropriate work-life balance.
Customers and communities: Our vision is to be Australia’s
leading customer-connected Bank. We engage with customers
and communities, by taking time to connect, listen and
understand and build sustainable relationships. It makes
sense to have a diverse team to be able to better understand
and meet the needs of our diverse customer base and the
communities in which we operate.
The Bank: Our ability to deliver our “unique style of banking”
is dependent on having the best people. We will only find
these people by drawing from the broadest pool of candidates
available. Attracting and retaining a diverse team of
talented people positions our organisation for success and
creates both immediate business value and a sustainable
organisation. It also contributes to our good reputation. So
diversity makes good business sense and helps create value
for shareholders."
49
Annual Financial Report Period ending 30 June 2013 The Governance & HR Committee has responsibility
for keeping the policy under review. This includes the
effectiveness of the policy. The Board is responsible for
assessing performance against measurable objectives on an
annual basis.
In April 2013, the role and membership of the people
development and diversity council was reviewed and the
council was renamed the Diversity Council with a renewed
focus on delivering the diversity and inclusiveness strategy.
The council is chaired by the Executive, Corporate Resources
and it represents a diverse group with cross organisation
coverage at a senior management level. Its role is to
promote diversity and inclusiveness in the workplace, and
also to provide input from across the organisation to assist
it to formulate policy, strategy and objectives. Its specific
responsibilities are:
> To champion the diversity vision for the Company
> To communicate the business case, success
stories and to inspire action in the business
> To role-model the leadership of diversity and
inclusiveness
> To support the development and oversight of the
organisation and divisional targets
> To identify relevant case studies and stories and
establish relevance to the organisation
> To establish and support communities of practice
> To support executive updates, highlighting issues,
progress and achievements as required.
Total
Number of women
Women as percentage of total 2013
Women as percentage of total 2012
All employees Award employees
5195
3251
63%
63%
2607
2144
82%
82%
50
Diversity and Inclusiveness strategy
A Diversity and Inclusiveness strategy was established in 2012
as a basis for a 3 year work program to develop greater diversity
and inclusiveness. The diversity and inclusiveness vision
is “Team success through the unique contribution of each
individual” with the following goals to be delivered by 2015:
> A more diverse workforce at all levels
> One third of senior management (including senior
managers and executives) to be women
> Flexible work and career will be how we work
> Leaders and employees will manage diversity as a
business opportunity.
A work program was developed during the first half of 2013 to
deliver the strategy by:
> Engaging and developing inclusive leaders
> Developing supportive practices and policies
> Embedding flexible work practices as the way we
do things
> Facilitating communities of practice which support
diversity and inclusiveness
> Connecting individuals and sharing success
stories.
The application of the diversity and inclusiveness strategy
and work program for 2013, which focused on foundation
programs, policies and initiatives, is described below.
Gender profile
Information about the Company’s gender profile is set out in
the following table.
Salaried
employees
(not senior
management or
executive)
2510
1087
43%
43%
Senior management
and executive positions
Senior
management
Executive
committee
Non-Executive
Directors
69
18
26%
25%
10
3
30%
22%
8
3
38%
38%
Progress against diversity objectives
set for 2013
The diversity objectives set for this year and progress against
those objectives is outlined below.
1. Increase the representation of females in senior
management (including senior managers and executives) from
25 percent to at least one third by 30 June 2015 - ongoing.
Representation is currently at 26 percent. This area will be
a primary focus of the 2014 work program with a women in
leadership community of practice now in place and development
of refreshed flexible work options designed to support career
progression. An initial women in leadership forum was
conducted which identified priority development areas.
2. Maintain female representation of at least one third of the
non-executive directors – ongoing.
This representation has been maintained, with three female
directors on the Board (out of a total of eight non-executive
directors).
3. Female management representation on subsidiary and joint
venture Boards – target 25 percent by 30 June 2013.
Female management representation on subsidiary and joint
venture Boards increased from 20 percent to 31 percent
during the year.
4. Senior management and the top 200 hiring managers to
attend a diversity awareness and unconscious bias workshop
with diversity messages to be built into the management and
leader development program by 30 June 2013.
280 leaders attended inclusive leader workshops addressing
diversity awareness and unconscious bias. The program was
attended by Board and executive committee members plus a wide
range of senior leaders with people management responsibility.
Key diversity messages following this program have been built
into the management and leader development program.
5. Flexible work arrangements to be reviewed by
30 June 2013.
A review of flexible work options and arrangements was
undertaken by an external consultant. The recommendations
are being reviewed to form the basis of refreshed and
supportive flexible work arrangements for all employees.
6. Additional operational milestones and targets to support each
of the elements of the diversity and inclusiveness strategy to be
set by 30 November 2012 and reviewed by 30 June 2013.
10 priorities were identified to support the diversity and
inclusiveness strategy. These were:
1. Leading inclusiveness and unconscious bias
2. Vision, three year journey and communication strategy
3. Diversity profile and metrics
4. Subsidiary ventures representation
5.
Inclusive leadership messages in recruitment
6. Compliance review and update
7. Flexible work options refresh and relaunch
8. Develop communities of practice
9. Leadership and entrenching in other People and
Performance frameworks
10. Development of partnerships
Priorities 1 to 4 were the focus of the 2013 work program.
In addition to the milestones outlined above the following
initiatives were delivered:
> Delivery of a communication program to
employees on diversity and inclusiveness with
practical leadership tools on leading in an
inclusive workplace and internet resources.
> An organisation profile survey was launched in
June 2013. This will provide valuable data to
further develop measures, targets and standards
for diversity and inclusiveness for the future.
2014 Diversity and Inclusiveness objectives
The objectives for 2014 are designed to further develop the
priority initiatives identified in 2013. They are:
1. Increase the representation of females in senior
management (including senior managers and executives) from
26 percent to at least one third by 30 June 2015 - ongoing.
2. Maintain female representation of at least one third of the
non-executive directors - ongoing
3. Develop initiatives in the following areas:
> embedding of diversity and inclusiveness
messages in recruitment practices and guidelines
> updating of compliance training
> refresh and relaunch of flexible work options
> development of communities of practice with a
focus on women in leadership and return to work.
Group Assurance
Group Assurance is an internal audit and credit risk review
function, independent of the business and of the external
auditor. It assesses the adequacy and effectiveness of
the Company’s processes for controlling its activities and
managing its risks.
The Head of Group Assurance has a direct reporting line to the
Board Audit Committee and an administrative reporting line to
the Executive, Corporate Resources, as well as direct access to
the Managing Director, the Chair of the Board Audit Committee
and the Chair of the Board.
The Board committee procedural rules provide for the Audit
Committee to meet at least annually with the head of Group
Assurance without management present.
Group Assurance also has direct access to any member of
staff and access to any information relevant to its work.
Reports on the outcome of assurance programs are provided
to the Board Audit Committee, with those relating to credit
risk also provided to the Board Credit Committee. Reports on
specific reviews are also provided to other Board committees
as appropriate.
The strategic plan for the Group Assurance function is
approved and monitored by the Board Audit Committee
which also assesses and confirms the independence and
effectiveness of the function.
51
Annual Financial Report Period ending 30 June 2013 Financial reporting
The directors of the Company are responsible for the
preparation and fair presentation of the financial statements.
The Board’s responsibility includes establishing and
maintaining internal controls relevant to the preparation and
fair presentation of financial statements that are free from
material misstatement, selecting and applying appropriate
accounting policies and making accounting estimates that are
reasonable in the circumstances.
The Audit Committee assists the Board by providing oversight
of the Group’s financial reporting responsibilities including
external audit independence and performance. The Audit
Committee responsibilities include the following:
> Assessing whether the financial statements are
consistent with committee members’ information
and knowledge and, in their opinion, adequate for
shareholder needs.
> Overseeing compliance with the statutory financial
reporting obligations of the Group.
> Considering and applying any significant changes
in accounting policies, principles and practices.
The Managing Director and Chief Financial Officer provide a
written statement to the Board in accordance with section
295A of the Corporations Act that the Annual Financial Report
is founded on a sound system of risk management and
internal control and that the system is operating effectively in
all material respects in relation to financial reporting risks. The
statement is made on the basis that it provides a reasonable,
but not absolute, level of assurance and does not imply a
guarantee against adverse events or circumstances that may
arise in future periods.
External auditor - independence policy
The Board Audit Committee is responsible for maintaining a
policy about auditor independence, rotation and the provision
of non-audit services, and monitoring compliance with that
policy. The policy on audit independence sets out the factors
that may compromise auditor independence.
It requires advance approval by the Audit Committee for
engaging the auditor for any non-audit services, to enable the
Audit Committee to consider whether there may be an impact
on auditor independence.
The policy requires the Audit Committee to receive the annual
and half-year independence declarations from the auditor.
The external auditor also meets separately with the Audit
Committee without the presence of management.
The Directors’ Report includes a statement about whether the
directors are satisfied that the provision of non-audit services
is compatible with the independence of the auditor and the
reasons for being so satisfied.
Rotation of audit personnel
The policy provides that a person who plays a significant
role in the audit must rotate if they have acted in that role
for five successive years or, if they were to act, they would
have played a significant role for more than five out of seven
successive financial years, with a two-year cooling-off period.
Risk management framework
Information on the Company’s risk management governance,
framework and material business risks is presented in the
Directors’ Report and Note 41 Risk Management of the
Financial Statements.
Remuneration arrangements
Information on the governance arrangements and policies
applicable to the Company’s remuneration is presented in
the 2013 Remuneration Report which forms part of the
Directors Report.
Annual General Meeting
Members may give written questions to the Company for
the auditor about the content of the auditor’s report to be
considered at the Annual General Meeting, or the conduct of
the audit of the Annual Financial Report to be considered at the
Annual General Meeting, no later than the fifth business day
before the day on which the Annual General Meeting is held.
The external audit engagement partner from Ernst & Young is
required to make sure that a suitably qualified representative
attends the Annual General Meeting. The chair of the meeting
provides an opportunity for the members as a whole at the
meeting to ask the auditor’s representative questions relevant
to the conduct of the audit, the preparation and conduct
of the auditor’s report, the accounting policies adopted by
the Company in relation to the preparation of the financial
statements and the independence of the auditor in relation to
the conduct of the audit.
The Chair also allows a reasonable opportunity for the
representative of the auditor to answer written questions
submitted before the meeting.
52
Non-audit services
The Audit Committee gives an annual and half-year statement
to the Board as to whether the Audit Committee is satisfied
that the independence of the external audit function has
been maintained having regard to the provision of non-audit
services, and why it is so satisfied.
As part of this process the Audit Committee receives a
report, confirmed by Group Assurance, setting out the nature
and scope of all non-audit services provided during the
period, including fees and confirmation from relevant senior
management that they are not aware of any matters that might
impact the auditor’s independence.
Five year history
The Bendigo and Adelaide Bank Group
Financial Performance
for the year ended 30 June
Interest income
Interest expense
Net interest income
Other income
Bad & doubtful debts expense (net of bad debts recovered)
Other expenses
Profit before income tax expense
Income tax expense
Net (profit)/loss attributable to non controlling interest
Profit after income tax expense
Adjustments
Cash basis earnings
Financial Position at 30 June
Total assets
Net loans and other receivables
Cash and cash equivalents
Financial assets and derivatives
Other assets
Equity
Deposits and Notes payable
Reset preference shares
Convertible preference shares
Subordinated debt
Other liabilities
Share Information
2013
$m
3,073.7
2,046.2
1,027.5
321.8
69.9
791.8
487.6
2012 1
$m
3,440.8
2,490.7
950.1
262.8
32.4
854.4
326.1
(135.3)
(131.1)
-
352.3
(4.3)
348.0
-
195.0
128.0
323.0
2011
$m
3,385.8
2,450.6
935.2
300.8
44.2
767.3
424.5
(77.9)
(4.5)
342.1
(5.9)
336.2
2010 2
$m
2,712.2
1,857.6
854.6
280.4
44.7
739.6
350.7
(90.8)
(17.3)
242.6
48.4
291.0
2009 3
$m
3,154.7
2,519.7
635.0
238.7
80.3
674.1
119.3
(35.5)
-
83.8
97.7
181.5
60,282.2
57,237.8
55,004.5
52,222.5
47,114.2
50,511.5
48,670.0
46,409.8
43,603.2
38,740.9
677.7
6,374.0
2,719.0
4,434.0
561.0
5,372.5
2,634.3
4,217.7
670.6
5,296.8
2,627.3
3,960.1
1,040.2
4,848.6
2,730.5
3,880.4
1,148.0
4,360.3
2,780.6
3,118.7
53,839.6
50,983.7
48,975.0
46,217.4
41,854.3
-
268.9
354.3
89.5
-
436.9
89.5
-
575.7
89.5
-
532.9
89.5
-
598.7
1,385.4
1,510.0
1,404.2
1,502.3
1,453.0
Net tangible assets per ordinary share
Earnings per ordinary share - cents
Cash basis earnings per ordinary share - cents
Dividends per ordinary share:
Interim - cents
Final - cents
Total - cents
Ratios
Profit after tax before specific items return on average assets
Return on average assets
Cash basis return on average ordinary equity
Return on average ordinary equity
$6.62
84.9
85.4
30.0
31.0
61.0
0.57%
0.60%
8.58%
8.52%
$6.16
48.6
84.2
30.0
30.0
60.0
0.56%
0.35%
8.36%
4.84%
$5.76
91.5
92.3
30.0
30.0
60.0
0.61%
0.64%
9.07%
8.99%
$5.27
67.4
83.3
28.0
30.0
58.0
0.56%
0.49%
8.18%
6.61%
$4.31
25.4
62.6
28.0
15.0
43.0
0.36%
0.18%
5.79%
2.35%
53
1 Figures for 2012 include the fully consolidated trading of Delphi Bank (formerly Bank of Cyprus Australia) from 1 March 2012.
2 Figures for 2010 include the fully consolidated trading of Rural Bank from 1 October 2009, Tasmanian Banking Services from 1 August 2009.
3 Figures for 2009 include the fully consolidated trading of Macquarie margin lending portfolio from January 2009.
Annual Financial Report Period ending 30 June 2013 Five year comparison
The Bendigo and Adelaide Bank Group
Financial Performance
for the year ended 30 June
Key Trading Indicators
Retail deposits - Bendigo Adelaide 3
Number of depositors' accounts - Bendigo Adelaide 3
Total loans approved
Number of loans approved
Liquid assets and cash equivalents
Total liabilities
Liquid assets & cash equiv as proportion of total liabilities
Number of branches 4
Average deposit holdings per branch
Number of staff (excluding Community Banks)
Assets per staff member
Staff per million dollars of assets 5
2013
2012 7
2011
2010 1
2009 2
($m)
($m)
($m)
($m)
(%)
($m)
(FTE)
($m)
33,854.4
33,017.1
29,867.9
27,542.6
26,505.0
2,107,719
2,151,355
1,860,441
1,812,286
1,754,849
14,101.4
12,665.6
13,885.5
11,916.6
79,927
7,051.7
79,724
5,933.5
83,942
5,967.4
80,881
5,888.8
9,137.4
69,678
5,508.3
55,848.2
53,020.1
51,044.4
48,260.7
43,995.5
12.63
489
69.2
4,251
14.182
0.07
11.19
486
67.9
4,189
13.665
0.07
11.69
466
64.1
4,019
13.686
0.07
12.20
448
61.5
3,847
13.554
0.07
12.52
426
62.2
3,598
13.095
0.08
Dissection of Loans by Security 6
($'000)
Residential loans
Commercial loans
Margin lending
Unsecured loans
Other
Gross loans
Dissection of Loans by Security 6
(%)
Residential loans
Commercial loans
Margin lending
Unsecured loans
Other
Total
Asset Quality
Impaired loans
Specific provisions
Net impaired loans
Net impaired loans % of gross loans
Specific provision for impairment
Specific provision % of gross loans less unearned
income
Collective provision
General reserve for credit losses (general provision)
Collective provision (net of tax effect) & GRCL (general provn)
as a % of risk-weighted assets
Loan write-offs as % of average total assets
54
($m)
($m)
($m)
(%)
($m)
(%)
($m)
($m)
(%)
(%)
35,009.5
33,768.8
31,522.3
28,875.5
28,569.4
12,662.0
11,622.1
10,784.2
10,182.1
1,915.6
2,333.2
3,202.2
3,627.0
824.2
267.8
869.2
238.7
834.6
220.5
823.7
191.0
5,987.6
3,475.9
707.1
183.1
50,679.1
48,832.0
46,563.8
43,699.3
38,923.1
69.08
24.98
3.78
1.63
0.53
69.15
23.80
4.78
1.78
0.49
67.70
23.16
6.88
1.79
0.47
66.08
23.30
8.30
1.88
0.44
73.40
15.38
8.93
1.82
0.47
100.00
100.00
100.00
100.00
100.00
390.1
(103.3)
286.8
0.57
104.1
0.21
34.5
138.3
0.53
0.12
358.5
(102.1)
256.4
0.53
102.9
0.21
31.8
128.5
0.53
0.06
358.7
(90.6)
268.1
0.58
91.4
0.20
41.9
110.9
0.54
0.07
282.2
(78.3)
203.9
0.47
79.1
0.18
47.1
104.7
0.54
0.10
223.6
(66.9)
156.7
0.42
67.7
0.18
44.3
86.1
0.54
0.07
1 Figures for 2010 include the fully consolidated trading of Rural Bank from 1 October 2009, Tasmanian Banking Services from 1 August 2009.
2 Figures for 2009 include the fully consolidated trading of Macquarie margin lending portfolio from January 2009.
3 Excludes Rural Bank and treasury retail deposits.
4 Includes Community Bank® branches, franchises and joint ventures.
5 These ratios do not take into account off-balance sheet assets under management, which totalled:- $1.0 billion at 30 June 2013, $1.2 billion at 30 June 2012, $1.9
billion at 30 June 2011, $1.9 billion at 30 June 2010.
6 For the purposes of this dissection, overdrafts and personal loans secured by residential and commercial property mortgages are included in residential and
commercial loan categories respectively.
7 Figures for 2012 include the fully consolidated trading of Bank of Cyprus Australia from 1 March 2012.
Five year comparison
The Bendigo and Adelaide Bank Group
Income statement
For the year ended 30 June 2013
Income
Net interest income
Interest income
Interest expense
Total net interest income
Other revenue
Dividends
Fees
Commissions
Other revenue
Total other revenue
Other income
Ineffectiveness in cash flow hedges
Other
Share of joint ventures net profit
Total income after interest expense
Expenses
Bad and doubtful debts on loans and receivables
Bad and doubtful debts
Bad and doubtful debts recovered
Total bad and doubtful debts on loans and receivables
Other expenses
Staff and related costs
Occupancy costs
Amortisation of intangibles
Property, plant & equipment costs
Fees and commissions
Impairment loss on goodwill
Impairment loss on held for sale assets
Integration costs
Employee shares (gain)/loss
Other
Total other expenses
Profit before income tax expense
Income tax expense
Net profit attributable to owners of the parent
Earnings per share for profit attributable to the ordinary equity holders
of the parent:
Basic earnings per ordinary share (cents per share)
Diluted earnings per ordinary share (cents per share)
Franked dividends per ordinary share (cents per share)
Consolidated
Parent
Note
2013
$m
2012
$m
2013
$m
2012
$m
4
4
4
4
4
4
4
4
21
4
4
4
4
4
4
4
4
4
4
4
6
8
8
9
3,073.7
2,046.2
3,440.8
2,490.7
2,500.5
1,627.8
2,617.1
1,858.5
1,027.5
950.1
872.7
758.6
0.7
167.6
44.7
82.6
295.6
(1.8)
26.4
24.6
1.6
7.8
171.2
43.6
52.5
275.1
(13.0)
-
(13.0)
115.7
145.2
15.9
53.1
329.9
(6.6)
(12.3)
(18.9)
0.7
1.9
1,349.3
1,212.9
1,185.6
72.7
(2.8)
69.9
36.8
(4.4)
32.4
54.5
(2.7)
51.8
7.3
154.1
14.4
51.1
226.9
(13.8)
-
(13.8)
1.1
972.8
21.8
(4.0)
17.8
407.0
387.8
363.6
339.5
67.6
33.1
10.2
10.0
-
-
9.9
(3.3)
206.4
697.5
436.3
(81.1)
355.2
61.3
34.6
10.8
9.4
95.1
-
2.7
1.1
204.3
758.8
196.2
(90.7)
105.5
55
70.6
43.8
10.6
28.6
6.2
-
9.9
(3.3)
218.4
791.8
487.6
(135.3)
352.3
84.9
77.9
61.0
65.6
44.0
11.4
30.4
95.1
3.8
2.7
1.1
212.5
854.4
326.1
(131.1)
195.0
48.6
47.7
60.0
Annual Financial Report Period ending 30 June 2013
Statement of
comprehensive income
For the year ended 30 June 2013
Profit for the year
Items which may be reclassified subsequently to the profit & loss:
Net gain/(loss) on available for sale - equity investments
Transfer to income on sale of available for sale assets
Net gain on cash flow hedges taken to equity
Net loss on reclassification from cash flow hedge reserve to income
Net unrealised gain/(loss) on debt securities in available for sale
portfolio
Tax effect on items taken directly to or transferred from equity
Items which will not be reclassified subsequently to the profit &
loss:
Actuarial gain/(loss) on superannuation defined benefits plan
Tax effect on items taken directly to or transferred from equity
Net income recognised directly in equity
Total comprehensive income for the period
Total comprehensive income for the period attributable to:
Note
35
35
35
35
35
35
35
35
Consolidated
Parent
2013
$m
352.3
1.1
(37.1)
75.8
(1.8)
2.9
(13.1)
27.8
2.3
(0.7)
1.6
381.7
2012
$m
195.0
(9.6)
-
47.0
(13.0)
(1.8)
(7.3)
15.3
(1.8)
0.4
(1.4)
208.9
2013
$m
355.2
-
-
60.2
(6.6)
2.9
(17.3)
39.2
2.3
(0.7)
1.6
396.0
2012
$m
105.5
(0.1)
-
34.2
(13.9)
(1.8)
(6.1)
12.3
(1.8)
0.4
(1.4)
116.4
Members of the Parent
381.7
208.9
396.0
116.4
56
Statement of
comprehensive income
For the year ended 30 June 2013
Balance sheet
As at 30 June 2013
Assets
Cash and cash equivalents
Due from other financial institutions
Amounts receivable from controlled entities
Financial assets held for trading
Financial assets available for sale - debt securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity investments
Derivatives
Loans and other receivables - investment
Net loans and other receivables
Investments accounted for using the equity method
Shares in controlled entities
Property, plant & equipment
Deferred tax assets
Investment property
Assets held for sale
Intangible assets and goodwill
Total Assets
Liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Provisions
Deferred tax liabilities
Reset preference shares
Convertible preference shares
Subordinated debt
Total Liabilities
Net Assets
Equity
Equity attributable to equity holders of the parent
Issued capital - ordinary
Perpetual non-cumulative redeemable convertible preference shares
Step up preference shares
Employee Share Ownership Plan (ESOP) shares
Reserves
Retained earnings
Total Equity
Note
13
13
14
15
17
27
16
43
18
18
21
22
6
24
23
25
13
28
28
43
29
6
30
6
31
32
33
34
34
34
34
35
35
Consolidated
Parent
2013
$m
383.8
293.9
-
2012
$m
288.8
272.2
-
5,465.2
4,366.1
535.5
323.3
615.4
18.1
31.9
554.1
444.8
388.4
509.7
124.7
48.5
453.0
2013
$m
258.1
292.2
544.7
5,465.8
1,362.9
1.8
1,229.9
4.5
182.6
554.1
2012
$m
175.8
266.3
1,090.8
4,367.0
1,594.6
1.8
837.4
4.1
547.3
453.0
49,957.4
48,217.0
44,691.3
41,366.6
15.6
12.9
-
-
63.4
132.1
348.9
25.4
69.0
170.2
298.9
25.4
13.8
526.5
59.5
96.6
5.9
-
10.7
604.1
60.6
108.5
-
-
1,518.2
60,282.2
1,548.2
57,237.8
1,390.0
56,680.2
1,408.4
52,897.0
379.5
47,439.0
6,400.6
98.4
688.7
-
47.1
93.5
78.2
-
268.9
354.3
55,848.2
4,434.0
-
5,829.9
327.2
44,572.7
6,411.0
179.0
731.8
86.8
80.7
104.5
89.5
-
436.9
53,020.1
4,217.7
371.4
315.1
44,121.7
40,179.4
350.3
85.7
887.9
47.1
90.3
88.0
-
268.9
302.2
-
111.2
1,168.0
6,294.1
86.8
75.8
209.2
89.5
-
361.1
52,443.4
4,236.8
48,890.2
4,006.8
3,758.0
3,681.8
3,758.0
3,681.8
57
88.5
100.0
(18.7)
108.1
398.1
88.5
100.0
(21.3)
72.2
296.5
88.5
100.0
(18.7)
122.9
186.1
88.5
100.0
(21.3)
70.7
87.1
4,434.0
4,217.7
4,236.8
4,006.8
Annual Financial Report Period ending 30 June 2013
Statement of
changes in equity
For the year ended 30 June 2013
Consolidated
At 1 July 2012
Opening balance b/fwd
Comprehensive income:
Profit for the year
Other comprehensive income
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Shares issued
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2013
1 refer to note 34 Issued Capital for further details
2 refer to note 35 Retained earnings and reserves for further details
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Shares 1
$m
Retained
earnings
Reserves 2
Total equity
$m
$m
$m
3,681.8
167.2
296.5
72.2
4,217.7
-
-
-
76.2
-
-
-
-
-
-
-
-
2.6
-
-
-
3,758.0
169.8
352.3
1.6
353.9
-
-
(9.8)
-
(242.5)
398.1
-
27.8
27.8
-
-
9.8
(1.7)
352.3
29.4
381.7
76.2
2.6
-
(1.7)
-
(242.5)
108.1
4,434.0
For the year ended 30 June 2012
Attributable to owners of Bendigo and Adelaide Bank Limited
At 1 July 2011
Opening balance b/fwd
Comprehensive income:
Profit for the year
Other comprehensive income
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Shares issued
Share issue expenses
Reduction in Employee Share Ownership Plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2012
58
1 refer to note 34 Issued Capital for further details
2 refer to note 35 Retained earnings and reserves for further details
Issued
ordinary
capital
Shares 1
Retained
earnings
Reserves 2
Total equity
$m
$m
$m
$m
$m
3,408.9
163.9
349.5
37.8
3,960.1
-
-
-
274.8
(1.9)
-
-
-
-
-
-
-
-
-
3.3
-
-
-
3,681.8
167.2
195.0
(1.4)
193.6
-
-
-
(17.6)
-
(229.0)
296.5
-
15.3
15.3
-
-
-
17.6
1.5
195.0
13.9
208.9
274.8
(1.9)
3.3
-
1.5
-
(229.0)
72.2
4,217.7
Statement of
changes in equity
For the year ended 30 June 2013
Statement of changes in equity
(continued)
Parent
At 1 July 2012
Opening balance b/fwd
Acquired in business combination
Comprehensive income:
Profit for the year
Other comprehensive income
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Shares issued
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2013
1 refer to note 34 Issued Capital for further details
2 refer to note 35 Retained earnings and reserves for further details
For the year ended 30 June 2012
At 1 July 2011
Opening balance b/fwd
Comprehensive income:
Profit for the year
Other comprehensive income
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Shares issued
Share issue expenses
Reduction in Employee Share Ownership Plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2012
1 refer to note 34 Issued Capital for further details
2 refer to note 35 Retained earnings and reserves for further details
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Shares 1
$m
Retained
earnings
Reserves 2
Total equity
$m
$m
$m
3,681.8
167.2
-
-
-
-
76.2
-
-
-
-
-
-
-
-
-
2.6
-
-
-
87.1
(0.6)
355.2
1.6
356.8
-
-
(14.7)
-
(242.5)
70.7
4,006.8
-
-
39.2
39.2
-
-
14.7
(1.7)
(0.6)
355.2
40.8
396.0
76.2
2.6
-
(1.7)
-
(242.5)
3,758.0
169.8
186.1
122.9
4,236.8
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Shares 1
$m
Retained
earnings
Reserves 2
Total equity
$m
$m
$m
3,408.9
163.9
224.6
43.6
3,841.0
-
-
-
274.8
(1.9)
-
-
-
-
-
-
-
-
-
3.3
-
-
-
105.5
(1.4)
104.1
-
-
-
(12.6)
-
(229.0)
-
12.3
12.3
-
-
-
12.6
2.2
105.5
10.9
116.4
274.8
(1.9)
3.3
-
2.2
-
(229.0)
3,681.8
167.2
87.1
70.7
4,006.8
59
Annual Financial Report Period ending 30 June 2013
Cash flow
statement
For the year ended 30 June 2013
Consolidated
Parent
Note
2013
$m
2012
$m
2013
$m
2012
$m
Cash flows from operating activities
Interest and other items of a similar nature received
3,134.5
3,442.3
2,324.6
2,584.1
Interest and other costs of finance paid
(2,132.8)
(2,545.0)
(1,678.9)
(1,868.9)
Receipts from customers (excluding effective interest)
Payments to suppliers and employees
Dividends received
Income taxes paid
Net cash flows from operating activities
12
Cash flows from investing activities
Cash paid for purchases of property, plant and equipment
Cash proceeds from sale of property, plant and equipment
Cash paid for purchases of investment property
Cash proceeds from sale of investment property
Cash paid for purchases of intangible software
Cash paid for purchases of equity investments
Cash proceeds from sale of equity investments
Capital injection into subsidiaries
Cash paid for investment in associate
Net (increase) in balance of loans and other receivables outstanding
Net (increase)/decrease in balance of investment securities
Proceeds from return of capital
Net cash received on acquisition of a business combination
263.9
(665.7)
0.8
(177.2)
423.5
(7.1)
0.8
(31.8)
20.1
(2.5)
-
109.8
-
-
(1,841.5)
(1,124.7)
-
(258.8)
265.6
(850.5)
8.1
(120.6)
199.9
(12.2)
1.2
(44.4)
11.0
(15.4)
(12.0)
-
-
-
(929.6)
208.1
0.4
(213.1)
228.6
(544.2)
115.7
(124.4)
321.4
(6.5)
0.7
-
6.6
-
-
-
(36.0)
(1.5)
256.3
(677.7)
7.3
(87.0)
214.1
(11.7)
1.1
-
-
(8.6)
(2.6)
-
-
-
(2,879.7)
(1,596.6)
(867.1)
-
(258.8)
Net cash flows used in investing activities
(3,135.7)
(1,006.0)
(4,042.3)
Cash flows from financing activities
Proceeds from issue of shares
Net increase in balance of retail deposits
Net increase in balance of wholesale deposits
Repayment of subordinated debt
Dividends paid
Net decrease in balance of notes payable
Repayment of ESOP shares
Payment of share issue costs
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
177.7
1,582.8
1,283.5
(82.6)
(166.1)
(10.4)
2.6
(10.9)
2,776.6
64.4
195.5
2,638.3
78.9
(138.7)
(149.7)
(2,040.8)
3.3
(1.9)
584.9
(221.2)
177.7
2,712.9
1,229.4
(58.9)
(166.1)
(113.9)
2.6
(10.9)
3,772.8
51.9
Cash and cash equivalents at the beginning of period
233.8
455.0
127.0
773.7
-
(131.4)
(976.1)
195.5
2,614.9
38.5
(123.8)
(149.7)
(2,020.8)
3.3
(1.9)
556.0
(206.0)
333.0
Cash and cash equivalents at the end of period
13
298.2
233.8
178.9
127.0
60
Cash flow
statement
For the year ended 30 June 2013
Notes to the
financial statements
1. Corporate information
The financial report of Bendigo and Adelaide Bank Limited (the
Company) for the year ended 30 June 2013 was authorised
for issue in accordance with a resolution of the directors on 3
September 2013.
Bendigo and Adelaide Bank Limited is a company limited by
shares incorporated in Australia whose shares are publicly
traded on the Australian Securities Exchange.
The domicile of the Company is Australia.
The registered office of the Company is:
The Bendigo Centre
22 – 44 Bath Lane
Bendigo, Victoria
Australia 3550
2. Summary of significant
accounting policies
2.1 Basis of preparation
Bendigo and Adelaide Bank Limited is a “prescribed
corporation” in terms of the Corporations Act 2001. Financial
reports prepared in compliance with the Banking Act are
deemed to comply with the accounts provisions of the
Corporations Act 2001.
The financial report is a general purpose financial report
which has been prepared in accordance with the Banking
Act, Australian Accounting Standards, Corporations Act 2001
and the requirements of law so far as they are applicable to
Australian banking corporations, including the application of
ASIC Class Order 10/654 allowing the disclosure of parent
entity financial statements due to Australian Financial
Services Licensing obligations.
The financial report has been prepared in accordance with
the historical cost convention, amortised cost for loans and
receivables and financial liabilities, except for investment
properties, land and buildings, derivative financial instruments
and available-for-sale financial assets which are measured at
their fair value.
The amounts contained in the financial statements have been
rounded off under the option available to the Company under
ASIC Class Order 98/0100. The Company is an entity to which
the Class Order applies. The Class Order allows for rounding
to the nearest one hundred thousand dollars ($’00,000).
2.2 Compliance with IFRS
The financial report complies with Australian Accounting
Standards and International Financial Reporting Standards
(IFRS).
Recently issued or amended standards not yet effective
Australian Accounting Standards that have recently been
issued or amended but are not yet effective have not been
adopted for the annual reporting period ended 30 June 2013:
Application
date of
Standard 1
1 July 2013
Application
date for
Group 1
1 July 2013
Impact on Group
financial report
The Group has already
presented Other
Comprehensive Income
in the required format.
Refer to the Statement
of Comprehensive
Income.
1 July 2013
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, however
it is not expected to
result in a material
impact to the Group.
Reference
Title
Summary
AASB 2012-9
Amendments to Australian
Accounting Standards
– Presentation of Other
Comprehensive Income
[AASB 1,5,7,101,112,12
0,121,132,133,134,103
9, 1049]
AASB 119
Employee Benefits
This Standard requires entities to group items
presented in other comprehensive income on
the basis of whether they might be reclassified
subsequently to profit or loss and those that will not.
The main change introduced by this standard is to
revise the accounting for defined benefit plans. The
amendment removes the options for accounting
for the liability, and requires that the liabilities
arising from such plans is recognised in full with
actuarial gains and losses being recognised in other
comprehensive income. It also revised the method of
calculating the return on plan assets.
The revised standard changes the definition of short-
term employee benefits. The distinction between
short-term and other long-term employee benefits is
now based on whether the benefits are expected to be
settled wholly within 12 months after the reporting date.
Consequential amendments were also made to other
standards via AASB 2012-10.
61
Annual Financial Report Period ending 30 June 2013 Application
date of
Standard 1
Impact on Group
financial report
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
Application
date for
Group 1
1 July 2013
2. Summary of significant
accounting policies (continued)
Reference
Title
Summary
Annual Improve-
ments 2009-2012
Cycle 3
Annual Improvements to
IFRSs 2009-2012 Cycle
This standard sets out amendments to International
Financial Reporting Standards (IFRSs) and the related
bases for conclusions and guidance made during the
International Accounting Standards Board’s Annual
Improvements process. These amendments have not
yet been adopted by the AASB.
The following items are addressed by this standard:
IFRS 1 First-time Adoption of International Financial
Reporting Standards
> Repeated application of IFRS 1
> Borrowing costs
IAS 1 Presentation of Financial Statements
> Clarification of the requirements for
comparative information
IAS 16 Property, Plant and Equipment
> Classification of servicing equipment
IAS 32 Financial Instruments: Presentation
> Tax effect of distribution to holders of equity
instruments
IAS 34 Interim Financial Reporting
> Interim financial reporting and segment
information for total assets and liabilities
The Group has not yet
determined the extent
of the impacts of the
amendments, however
it is not expected to
result in a material
impact to the Group.
There are no changes
to the current reporting
requirements.
1 July 2013
1 July 2013
AASB 2011-4
Amendments to Australian
Accounting Standards to
Remove Individual Key
Management Personnel
Disclosure Requirements
[AASB 124]
This Amendment deletes from AASB 124 individual
key management personnel disclosure requirements
for disclosing entities that are not companies. It also
removes the individual KMP disclosure requirements
for all disclosing entities in relation to equity holdings,
loans and other related party transactions.
1 July 2013
AASB 1053
Application of Tiers of
Australian Accounting
Standards
62
1 July 2013
This Standard establishes a differential financial
reporting framework consisting of two Tiers of
reporting requirements for preparing general purpose
financial statements:
(a) Tier 1: Australian Accounting Standards
(b) Tier 2: Australian Accounting Standards – Reduced
Disclosure Requirements
Tier 2 comprises the recognition, measurement and
presentation requirements of Tier 1 and substantially
reduced disclosures corresponding to those
requirements.
The following entities apply Tier 1 requirements in
preparing general purpose financial statements:
(a) For-profit entities in the private sector that have
public accountability (as defined in this Standard);
and
(b) The Australian Government and State, Territory and
Local Governments.
The following entities apply either Tier 2 or Tier 1
requirements in preparing general purpose financial
statements:
(a) For-profit private sector entities that do not have
public accountability;
(b) All not-for-profit private sector entities; and
(c) Public sector entities other than the Australian
Government and State, Territory and Local
Governments.
Consequential amendments to other standards to
implement the regime were introduced by AASB
2010-2, 2011-2, 2011-6, 2011-11, 2012-1, 2012-7
and 2012-11.
2. Summary of significant
accounting policies (continued)
Reference
Title
Summary
AASB 2013-2
Amendments to Australian
Accounting Standards –
Disclosures – Offsetting
Financial Assets and
Financial Liabilities
AASB 2013-4
Amendments to Australian
Accounting Standards –
Government Loans
AASB 2013-2 principally amends AASB 7 Financial
Instruments: Disclosures to require disclosure of
information that will enable users of an entity’s
financial statements to evaluate the effect or potential
effect of netting arrangements, including rights of set-
off associated with the entity’s recognised financial
assets and recognised financial liabilities, on the
entity’s financial position.
AASB 2013-4 adds an exception to the retrospective
application of Australian Accounting Standards
under AASB 1 First-time Adoption of Australian
Accounting Standards to require that first-time
adopters apply the requirements in AASB 139
Financial Instruments: Recognition and Measurement
(or AASB 9 Financial Instruments) and AASB 120
Accounting for Government Grants and Disclosure of
Government Assistance prospectively to government
loans (including those at a below-market rate of
interest) existing at the date of transition to Australian
Accounting Standards.
Application
date of
Standard 1
Impact on Group
financial report
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
Application
date for
Group 1
1 July 2013
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2013
AASB 2012-5
Amendments to Australian
Accounting Standards
arising from Annual
Improvements 2009-2011
Cycle;
AASB 2012-3
AASB 2010-8
Amendments to Australian
Accounting Standards
– Offsetting Financial
Assets and Financial
Liabilities;
Amendments to Australian
Accounting Standards –
Deferred Tax: Recovery of
Underlying Assets [AASB
112]
AASB 10
Consolidated Financial
Statements
AASB 2012-5 makes amendments resulting from the
2009-2011 Annual Improvements Cycle. The Standard
addresses a range of improvements, including the
following:
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2013
> repeat application of AASB 1 is permitted
(AASB 1); and
> clarification of the comparative information
requirements when an entity provides a third
balance sheet (AASB 101 Presentation of
Financial Statements).
AASB 2012-3 adds application guidance to AASB
132 Financial Instruments: Presentation to address
inconsistencies identified in applying some of the
offsetting criteria of AASB 132, including clarifying the
meaning of “currently has a legally enforceable right of
set-off” and that some gross settlement systems may
be considered equivalent to net settlement.
These amendments address the determination of
deferred tax on investment property measured at fair
value and introduce a rebuttable presumption that
deferred tax on investment property measured at
fair value should be determined on the basis that the
carrying amount will be recoverable through sale. The
amendments also incorporate SIC-21 Income Taxes
– Recovery of Revalued Non-Depreciable Assets into
IFRS 112.
IFRS 10 establishes a new control model that
applies to all entities. It replaces parts of IFRS 127
Consolidated and Separate Financial Statements
dealing with the accounting for consolidated financial
statements and UIG-112 Consolidation – Special
Purpose Entities.
The new control model broadens the situations when
an entity is considered to be controlled by another
entity and includes new guidance for applying the
model to specific situations, including when acting as
a manager may give control, the impact of potential
voting rights and when holding less than a majority
voting rights may give control. This is likely to lead
to more entities being consolidated into the Group.
Consequential amendments were also made to other
standards via IFRS 2011-7 and 2012-10.
1 January 2014 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2014
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2013
1 January 2013 The Group has
1 July 2013
determined there
are no amendments
required to the
consolidated financial
statements.
63
Annual Financial Report Period ending 30 June 2013 2. Summary of significant
accounting policies (continued)
Reference
Title
Summary
AASB 11
Joint Arrangements
AASB 12
Disclosure of Interests in
Other Entities
AASB 13
Fair Value Measurement
IFRS 11 replaces IFRS 131 Interests in Joint Ventures
and UIG-113 Jointly- controlled Entities – Non-
monetary Contributions by Ventures. IFRS 11 uses
the principle of control in IFRS 10 to define joint
control, and therefore the determination of whether
joint control exists may change. In addition IFRS 11
removes the option to account for jointly controlled
entities using proportionate consolidation. Instead,
accounting for a joint arrangement is dependent
on the nature of the rights and obligations arising
from the arrangement. Joint operations that give
the venturers a right to the underlying assets
and obligations themselves is accounted for by
recognising the share of those assets and obligations.
Joint ventures that give the venturers a right to the net
assets is accounted for using the equity method
Consequential amendments were also made to other
standards via IFRS 2011-7, 2010-10 and 128.
IFRS 12 includes all disclosures relating to an
entity’s interests in subsidiaries, joint arrangements,
associates and structured entities. New disclosures
have been introduced about the judgments made by
management to determine whether control exists,
and to require summarised information about joint
arrangements, associates and structured entities and
subsidiaries with non-controlling interests.
IFRS 13 establishes a single source of guidance
under IFRS for determining the fair value of assets
and liabilities. IFRS 13 does not change when an
entity is required to use fair value, but rather, provides
guidance on how to determine fair value under IFRS
when fair value is required or permitted by IFRS.
Application of this definition may result in different fair
values being determined for the relevant assets.
IFRS 13 also expands the disclosure requirements
for all assets or liabilities carried at fair value. This
includes information about the assumptions made
and the qualitative impact of those assumptions on
the fair value determined.
Consequential amendments were also made to other
standards via IFRS 2011-8.
Application
date of
Standard 1
Impact on Group
financial report
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
Application
date for
Group 1
1 July 2013
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2013
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2013
64
2. Summary of significant
accounting policies (continued)
Reference
Title
Summary
AASB 9
Financial Instruments
AASB 2012-2
Amendments to Australian
Accounting Standards –
Disclosures – Offsetting
Financial Assets and
Financial Liabilities
Interpretation 21
Levies
AASB 9 includes requirements for the classification
and measurement of financial assets resulting from
the first part of Phase 1 of the IASB’s project to
replace IAS 39 Financial Instruments: Recognition
and Measurement (AASB 139 Financial Instruments:
Recognition and Measurement). It was further
amended by AASB 2010-7 to reflect amendments to
the accounting for financial liabilities.
These requirements improve and simplify the
approach for classification and measurement of
financial assets compared with the requirements of
AASB 139. The main changes are described below.
(a) Financial assets that are debit instruments are
classified based on (1) the objective of the entity’s
business model for managing the financial assets; (2)
the characteristics of the contractual cash flows. This
replaces the numerous categories of financial assets
in AASB 139, each of which had its own classification
criteria.
(b) AASB 9 allows an irrevocable election on
initial recognition to present gains and losses on
investments in equity instruments that are not held
for trading in other comprehensive income. Dividends
in respect of these investments that are a return on
investment can be recognised in profit or loss and
there is no impairment or recycling on disposal of the
instrument.
(c) Financial assets can be designated and measured
at fair value through profit or loss at initial recognition
if doing so eliminates or significantly reduces a
measurement or recognition inconsistency that
would arise from measuring assets or liabilities, or
recognising the gains and losses on them, on different
bases.
(d) Where the fair value option is used for financial
liabilities the change in fair value is to be accounted
for as follows:
The change attributable to changes in credit risk are
presented in other comprehensive income (OCI).
The remaining change is presented in profit or loss.
If this approach creates or enlarges an accounting
mismatch in the profit or loss, the effect of the
changes in credit risk are also presented in profit
or loss.
Consequential amendments were also made to other
standards as a result of AASB 9, introduced by AASB
2009-11 and superseded by AASB 2010-7 and
2010-10.
AASB 2012-2 principally amends AASB 7 Financial
Instruments: Disclosures to require disclosure of the
effect or potential effect of netting arrangements. This
includes rights of set-off associated with the entity’s
recognised financial assets and liabilities on the
entity’s financial position, when the offsetting criteria
of AASB 132 are not all met.
Application
date of
Standard 1
1 January
2013 2
Impact on Group
financial report
The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
Application
date for
Group 1
1 January 2013
1 January 2013 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2013
The Interpretation confirms that a liability to pay a
levy is only recognised when the activity that triggers
the payment occurs. Applying the going concern
assumption does not create a constructive obligation.
1 January 2014 The Group has not yet
determined the extent
of the impacts of the
amendments, if any.
1 July 2014
65
1 Designates the beginning of the applicable annual reporting period unless otherwise stated.
2 AASB ED 215 Mandatory effective date of IFRS 9 proposes to defer the mandatory effective date of AASB 9 to annual periods beginning on or after 1
January 2013, with early application permitted.
3 These IFRS amendments have not yet been adopted by the AASB. In order to claim compliance with IFRS, these amendments should be noted in the
financial statements.
Annual Financial Report Period ending 30 June 2013 2. Summary of significant
accounting policies (continued)
2.3 Basis of consolidation
The consolidated financial statements comprise the financial
statements of Bendigo and Adelaide Bank Limited and all of its
controlled entities (the Group). Interests in joint ventures are
equity accounted and are not part of the consolidated Group.
A controlled entity is any entity (including special purpose
entities) over which Bendigo and Adelaide Bank Limited has
the power to govern directly or indirectly decision-making in
relation to financial and operating policies, so as to obtain
benefits from their activities. The existence and effect
of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group
controls another entity.
Controlled entities prepare financial reports for consolidation
in conformity with Group accounting policies. Adjustments
are made to bring into line any dissimilar accounting policies
that may exist. The financial statements of controlled entities
are prepared for the same reporting period as the parent
company.
All inter-company balances and transactions between entities
in the Group have been eliminated on consolidation. Where
a controlled entity has been sold or acquired during the year
its operating results have been included to the date control
ceased or from the date control was obtained.
Investments in subsidiaries held by Bendigo and Adelaide
Bank Limited are accounted for at cost in separate financial
statements of the parent entity.
The acquisition of subsidiaries is accounted for using the purchase
method of accounting. The purchase method of accounting
involves allocating the cost of the business combination to
the fair value of the assets acquired and the liabilities and
contingent liabilities assumed at the date of acquisition.
Minority interest not held by the Group are allocated their
share of net profit after tax in the income statement and are
presented within equity in the consolidated balance sheet,
separately from parent shareholders’ equity.
2.4 Business combinations
The purchase method of accounting is used to account for
all business combinations regardless of whether equity
instruments or other assets are acquired. Cost is measured
as the fair value of the assets given, shares issued or
liabilities incurred or assumed at the date of exchange. Where
equity instruments are issued in a business combination,
the fair value of the instruments is their published price at
the date of exchange unless, in rare circumstances, it can be
demonstrated that the published price at the date of exchange
is an unreliable indicator of fair value and that other evidence
and valuation methods provide a more reliable measure of
fair value. Transaction costs arising on the issue of equity
instruments are recognised directly in equity.
Except for non-current assets or disposal groups classified
as held for sale (which are measured at fair value less costs
to sell), all identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess
of the cost of the business combination over the net fair value
of the Group’s share of the identifiable net assets acquired is
recognised as goodwill. If the cost of acquisition is less than
the Group’s share of the net fair value of the identifiable net
assets of the subsidiary, the difference is recognised as a
gain in the income statement, but only after a reassessment
of the identifiable net assets and measurement of the net
assets acquired.
66
Where settlement of any part of the consideration is deferred,
the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate
used is the entity’s incremental borrowing rate, being the
rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
2.5 Changes in accounting policies
The accounting policies are consistent with those applied in
the previous financial year and corresponding interim period
except as follows:
The Group has adopted the following new and amended
Australian Accounting Standards and AASB Interpretations as
at 1 July 2012
> AASB 1054 Australian Additional Disclosures
> AASB 2010-6 Amendments to Australian
Accounting Standards – Disclosures on Transfers of
Financial Assets [AASB 1 and AASB 7]
> AASB 1048 Interpretation of Standards
> AASB 2010-8 Amendments to Australian
Accounting Standards – Deferred Tax: Recovery of
Underlying Assets [AASB 112]
> AASB 2011-9 Amendments to Australian
Accounting Standards – Presentation of Other
Comprehensive Income [AASB 1,5,7,101,112,120,1
21,132,133,134,1039,1049]
When the adoption of the Standard or Interpretation is
deemed to have an impact on the financial statements or
performance of the Group, its impact is described below:
AASB 1054 Australian Additional
Disclosures (amendment)
This standard is a consequence of phase 1 of the joint Trans-
Tasman Convergence project of the AASB and FRSB. This
standard relocates all Australian specific disclosures from other
standards to one place and revises disclosures in the following
areas: compliance with Australian Accounting Standards, the
statutory basis or reporting framework for financial statements,
whether the financial statements are general purpose or special
purpose, audit fees and imputation credits.
AASB 2010-6 Amendments to
Australian Accounting Standards
This standard makes amendments to increase the disclosure
requirements for transactions involving transfers of financial
assets. Disclosures require enhancements to the existing
disclosure in IFRS 7 where an asset is transferred but is not
derecognised and introduce new disclosure for assets that
are derecognised but the entity continues to have a continuing
exposure to the asset after the sale.
AASB 1048 Amendments to Australian
Accounting Standards
This standard identifies the Australian interpretations and
classifies them into two groups: those that correspond to
an IASB interpretation and those that do not. Entities are
required to apply each relevant Australian interpretation in
preparing financial statements that are within the scope of the
standard. The revised version of AASB 1048 updates the lists
of interpretations for new and amended interpretations issued
since the June 2010 version of AASB 1048.
2. Summary of significant
accounting policies (continued)
AASB 2010-8 Amendments to
Australian Accounting Standards
These amendments address the determination of deferred tax
on investment property measured at fair value and introduce a
rebuttable presumption that deferred tax on investment property
measured at fair value should be determined on the basis
that the carrying amount will be recoverable through sale. The
amendments also incorporate SIC-21 Income Taxes – Recovery
of Revalued non-Depreciable Assets into IFRS 112.
AASB 2011-9 Amendments to
Australian Accounting Standards
The main change resulting from the amendments is a
requirement for entities to group items presented in other
comprehensive income (OCI) on the basis of whether they
are potentially reclassifiable to profit or loss subsequently
(reclassification adjustments). These amendments do not remove
the option to present profit or loss and other comprehensive
income in two statements.
The amendments do not change the option to present items
of OCI either before tax or net of tax. However, if the items are
presented before tax then the tax related to each of the two
groups of OCI items (those that might be reclassified to profit
or loss and those that will not be reclassified) must be shown
separately.
2.6 Significant accounting judgments,
estimates and assumptions
(i) Significant accounting judgments
In the process of applying the Group’s accounting policies,
management has made the following judgments, apart from
those involving estimations, which have the most significant
effect on the amounts recognised in the financial statements:
Cash earnings
Cash earnings are considered by management as a key
indicator representing the performance of the core business
activities of the Group. The basis for determining cash
earnings is the statutory profit after tax, adjusted for specific
items after tax, acquired intangibles amortisation after tax and
preference share/step up preference share appropriations.
Cash earnings have been used in a number of key indicator
calculations such as Note 8 – earnings per ordinary share and
Note 10 – return on average ordinary equity.
Specific items
Specific items are those items that are deemed to be outside
of our core activities and such items are not considered to be
representative of the Group’s ongoing financial performance.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary
differences as management considers that it is probable
that future taxable profits will be available to utilise those
temporary differences.
Securitisations
Securitised positions are held through a number of Special
Purpose Entities (SPEs). As the Bank is exposed to the
majority of the residual risk associated with these SPEs, their
underlying assets, liabilities, revenues and expenses are
reported in the Bank’s consolidated balance sheet and income
statement. At each reporting period, the Bank reassesses the
requirement to consolidate these SPEs in accordance with
AASB 127 and judgment is exercised.
(ii) Significant accounting estimates and assumptions
The carrying amounts of certain assets and liabilities are
often determined based on estimates and assumptions of
future events. The key estimates and assumptions that have
a significant risk of causing a material adjustment to the
carrying amounts of certain assets and liabilities within the
next annual reporting period are:
Impairment of goodwill and intangibles with
indefinite useful lives
The Group determines whether goodwill and intangibles with
indefinite useful lives are impaired at least on an annual basis.
This requires an estimation of the recoverable amount of the
cash-generating units to which the goodwill and intangibles
with indefinite useful lives are allocated. The assumptions
used in this estimation of recoverable amount and the carrying
amount of goodwill and intangibles with indefinite useful lives
are discussed in Note 26.
Impairment of financial assets and property,
plant & equipment
The Group has to make a judgment as to whether an
impairment trigger is evident at each balance date. If a trigger
is evident the asset must be tested for impairment, which
requires the estimation of future cash flows and the use of an
appropriate discount rate.
Impairment of non-financial assets other than goodwill
The Group assess impairment of all assets at each reporting
date by evaluating conditions specific to the Group and
to the particular asset that may lead to impairment. If an
impairment trigger exists, the recoverable amount of the asset
is determined. This involves value in use calculations, which
incorporate a number of key estimates and assumptions.
Employee benefits (leave provisions)
The carrying amount of leave liabilities is calculated based on
assumptions and estimates of when employees will take leave
and the prevailing wage rates at the time the leave will be taken.
Long service leave liability also requires a prediction of the
number of employees that will achieve entitlement to long service
leave.
Superannuation defined benefit plan
Various actuarial assumptions are required when determining
the Group’s superannuation obligations. The bank’s policy on
superannuation defined benefit plan is disclosed in Note 2.24
and Note 44.
Loan provisioning
The Group determines whether loans are impaired on an
ongoing basis. This requires an estimation of the value of
future cash flows. The bank’s policy for calculation of loan loss
allowance is disclosed in Note 2.13.
Investment property
The fair value of investment properties are based on
estimated future cashflows using market indices of property
values and long term discount rates. The Bank’s policy for
calculation of the fair value is disclosed in Note 2.17.
67
Annual Financial Report Period ending 30 June 2013 2. Summary of significant
accounting policies (continued)
2.7 Comparatives
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
2.8 Trustee and funds management activities
Controlled entities of the Bank act as the Trustee and/or
Manager for a number of funds. The assets and liabilities of
these funds are not included in the consolidated financial
statements. The parent entity does not have direct or indirect
control of the funds as defined by Accounting Standard
AASB 127 Consolidated and Separate Financial Statements.
Commissions and fees generated by the funds management
activities are brought to account when earned.
2.9 Foreign currency transactions and balances
Both the functional and presentation currency of Bendigo
and Adelaide Bank Limited and each of its subsidiaries is
Australian dollars (AUD). Transactions in foreign currencies are
initially recorded in the functional currency at the exchange
rates ruling on the date of the transaction.
All amounts are expressed in Australian currency and all
references to "$" are to Australian dollars unless otherwise
stated. Amounts receivable and payable in foreign currencies
at balance date are converted at the rates of exchange
ruling at that date. Exchange differences relating to amounts
payable and receivable in foreign currencies are brought to
account as exchange gains or losses in the income statement
in the financial year in which the exchange rates change.
2.10 Cash and cash equivalents
Cash on hand and in banks and short-term deposits are stated
at nominal value.
For the purposes of the cash flow statement, cash includes
cash on hand and in banks, short-term money market
investments readily convertible into cash within two working
days, net of outstanding overdrafts.
Bank overdrafts are carried at amortised cost. Interest is
charged as an expense as it accrues.
2.11 Classification of financial instruments
Financial instruments in the scope of AASB 139 Financial
Instruments: Recognition and Measurement are classified
into one of five categories, which determine the accounting
treatment of the financial instrument.
The classification depends on the purpose for which the
instruments were acquired. Designation is re-evaluated
at each financial year end, but there are restrictions on
reclassifying to other categories.
The classifications are:
> Loans & receivables - measured at amortised cost
> Held to maturity - measured at amortised cost
> Held for trading - measured at fair value with
changes in fair value charged to the income
statement
> Available for sale - measured at fair value with
changes in fair value taken to equity
> Non-trading liabilities - measured at amortised
cost
All derivative contracts are recorded at fair value in the
balance sheet.
68
2.12 Financial assets and financial liabilities
All investments are initially recognised at cost, being the fair
value of the consideration given and including acquisition
charges associated with the investment. After initial
recognition, investments, which are classified as held for
trading and available-for-sale, are measured at fair value.
Gains or losses on investments held for trading are recognised
in the income statement.
All regular way purchases and sales of financial assets are
recognised on the settlement date i.e. the date the Group
settles the purchase of the asset. Regular way purchases or
sales are purchases or sales of financial assets under contracts
that require delivery of the assets within the period established
generally by regulation or convention in the market place.
Gains or losses on available-for-sale investments are
recognised as a separate component in equity until the
investment is sold, collected or otherwise disposed of, or until
the investment is determined to be impaired, at which time
the cumulative gain or loss previously reported in equity is
included in the income statement.
Treasury financial assets – held to maturity
Non-derivative financial assets with fixed or determinable
payments and fixed maturity are classified as held-to-maturity
where the Group has the positive intention and ability to hold
to maturity. Investments intended to be held for an undefined
period are not included in this classification.
Investments that are intended to be held to maturity are
subsequently measured at amortised cost using the effective
interest method.
Amortised cost is calculated by taking into account any discount
or premium on acquisition, over the period to maturity.
For investments carried at amortised cost, gains and losses are
recognised in income when the investments are derecognised
or impaired, as well as through the amortisation process.
Treasury financial liabilities – deposits and
subordinated debt
All treasury funding instruments are initially recognised at
cost, being the fair value of the consideration given and
including charges associated with the issue of the instrument.
They are subsequently measured at amortised cost using the
effective interest method.
Amortised cost is calculated by taking into account any discount
or premium on acquisition, over the period to maturity.
For liabilities carried at amortised cost, gains and losses are
recognised in the income statement when the instruments
are derecognised. Treasury funding instruments that are
hedged are treated in accordance with the accounting policy
for hedges.
Funding instruments that are issued in currencies other than
AUD are accounted for at amortised cost. These transactions
are restated to AUD equivalents each month with adjustments
taken directly to income.
Financial assets – available for sale share investments
Investment securities available for sale consist of securities
that are not actively traded by the Group.
Fair value of quoted investments in active markets are based
on current bid prices. If the relevant market is not considered
active (or the securities are unlisted), the Group establishes
fair value by using valuation techniques, including recent arm's
length transactions, discounted cash flow analysis, option
pricing models and other valuation techniques commonly used
by market participants.
2. Summary of significant
accounting policies (continued)
Purchases and sales of financial assets and liabilities that
require delivery of assets/securities within the time frame,
and generally established by regulation or convention in the
market place are recognised on the settlement date i.e. the
date that the Group receives or pays the principal sum.
2.13 Loans and receivables
Loans and receivables are carried at amortised cost, using
the effective interest method. The effective interest rate
calculation includes the contractual terms of loans together
with all fees, transaction costs and other premiums or
discounts.
Loans with renegotiated terms are accounted for in the same
manner, taking account of any change to the terms of the loan.
All loans are subject to continuous management review to
assess whether there is any objective evidence that any loan
or group of loans is impaired.
Impairment loss is measured as the difference between the
loan's carrying amount and the value of estimated future
cash flows (excluding future credit losses that have not
been incurred) discounted at the loan's original effective
interest rate. Impairment losses are recognised in the income
statement.
Deferred costs include costs associated with the acquisition,
origination or securitisation of loan portfolios. These costs are
amortised through the income statement over the life of the
loans in these portfolios.
Specific provision
A specific provision is recognised for all impaired loans when
there is reasonable doubt over the collectability of principal
and interest in accordance with the loan agreement. All bad
debts are written off against the specific provision in the
period in which they are classified as not recoverable.
The provision is determined by specific identification or by
estimation of expected losses in relation to loan portfolios
where specific identification is impractical, based on
historical impairment experience for these portfolios. These
portfolios include unsecured credit cards, overdrawn accounts
and personal loans, unsecured mortgage loans (property
realisation shortfalls) where provisions are calculated based
on historical loss experience.
Collective provision
Individual loans not subject to specific provisioning are
grouped together according to their risk characteristics and
are then assessed for impairment. Based on historical loss
data and current available information for assets with similar
risk characteristics, the appropriate collective provision is
raised. Adjustments to the collective provision are recognised
in the income statement.
General reserve for credit losses
Australian Prudential Regulation Authority (APRA) requires that
banks maintain a general reserve for credit losses to cover
risks inherent in loan portfolios. In certain circumstances the
collective provision can be included in this assessment.
Movements in the general reserve for credit losses are
recognised as an appropriation of retained earnings.
2.14 Investments accounted for using
the equity method
The Group's investment in joint ventures is accounted for
under the equity method of accounting in the consolidated
financial statements. These are entities in which the Group
has significant influence and is not a subsidiary. The financial
statements of joint ventures are used by the Group to apply
the equity method. The accounting policies of the joint
ventures and the Group are consistent.
The investments in the joint ventures are carried at cost
plus post-acquisition changes in the holding entity’s share
of the results of operations of the joint ventures, less any
impairment in value. The income statement of the holding
entity reflects the share of the results of operations of the
joint ventures.
Dividends receivable from joint ventures are recognised in the
holding entity’s income statement when received.
When the Group’s share of losses in a joint venture equals
or exceeds its interest in the joint venture, including any
unsecured long-term receivables and loans, the Group does
not recognise further losses, unless it has incurred obligations
or made payments on behalf of the joint venture.
2.15 Property, plant & equipment
Cost and valuation
Plant and equipment is measured at cost less accumulated
depreciation and any impairment in value. Land is measured
at fair value. Buildings are measured at fair value less
accumulated depreciation.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset as follows:
Asset category
Freehold buildings
Leasehold improvements
Plant & equipment
2013 Years
2012 Years
40
3 - 10
2 - 10
40
3 - 10
2 - 10
Impairment
Management has identified cash generating units and
applicable impairment indicators in accordance with AASB
136 Impairment of Assets.
The carrying values of plant and equipment are reviewed
for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. If any such
indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to
their recoverable amount.
The recoverable amount of plant and equipment is the greater
of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of
money and the risks specific to the asset.
For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the cash-
generating unit to which the asset belongs.
69
Impairment losses are recognised in the income statement,
unless they relate to revalued assets. Impairment losses of
revalued assets are recognised in the revaluation reserve.
Annual Financial Report Period ending 30 June 2013
2. Summary of significant
accounting policies (continued)
Revaluations
Following initial recognition at cost, land and buildings are
carried at a revalued amount which is the fair value at the
date of the revaluation less any subsequent accumulated
depreciation on buildings and accumulated impairment losses.
Fair value is determined by reference to market-based
evidence, which is the amount which the assets could be
exchanged between a knowledgeable willing buyer and a
knowledgeable willing seller in an arm's length transaction as
at the valuation date.
Any revaluation surplus is credited to the asset revaluation
reserve included in the statement of comprehensive income
and the equity section of the balance sheet unless it
reverses a revaluation decrease of the same asset previously
recognised in the income statement.
Any revaluation deficit is recognised in the income statement
unless it directly offsets a previous surplus of the same asset
recognised in the asset revaluation reserve.
An annual transfer from the asset revaluation reserve is
made to retained earnings for the depreciation relating to the
revaluation surplus. In addition, any accumulated depreciation
as at the revaluation date is eliminated against the gross
carrying amount of the asset and the net amount is restated
to the revalued amount of the asset.
Upon disposal, any revaluation reserve relating to the
particular asset being disposed is transferred to retained
earnings.
The fair value of property, plant and equipment is assessed at
each reporting date. Also, external valuations are performed
every three years (or more often if circumstances require)
ensuring that the carrying amount does not differ materially
from the asset's fair value at the balance sheet date.
Derecognition
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in
the income statement in the year the item is derecognised.
2.16 Assets held for sale
Assets are classified as held for sale, when their carrying
amounts are expected to be recovered principally through sale
within twelve months.
They are measured at the lower of carrying amount or fair
value less costs to sell, unless the nature of the assets
requires they be measured in line with another accounting
standard.
70
Assets classified as held for sale are neither amortised nor
depreciated.
2.17 Investment properties
Investment properties are measured initially at cost, including
transaction costs. The carrying amount includes the cost of
replacing part of an investment property at the time the cost
is incurred if the recognition criteria are met, and excludes the
costs of day-to-day servicing of an investment property.
Subsequent to initial recognition, fair value is determined by
discounting the expected future cash flows of the portfolio,
taking account of the restrictions on the ability to realise
the investment property due to contractual obligations.
Assumptions used in the modelling of future cash flows are
sourced from market indexes of property values and long term
growth/discount rates appropriate to residential property.
Gains or losses arising from changes in the fair values of
investment properties are recognised in profit and loss in the
year in which they arise.
2.18 Goodwill
Goodwill on acquisition is initially measured at cost being
the excess of the cost of the business combination over the
acquirer's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities at date of
acquisition.
Following initial recognition, goodwill is measured at cost less
any accumulated impairment loss. Goodwill is not amortised.
Goodwill is reviewed for impairment annually, or more
frequently, if events or changes in circumstances indicate that
the carrying value may be impaired.
Management has identified cash generating units and
applicable impairment indicators in accordance with AASB
136 Impairment of Assets.
Goodwill with respect to business combinations is allocated
to identify cash generating units expected to benefit from the
synergies of the combination.
Impairment is determined by assessing the recoverable
amount of the cash generating unit to which the goodwill
relates.
Where the recoverable amount of the cash generating unit is
less than the carrying amount, which includes the allocated
goodwill, an impairment loss is recognised in the income
statement, with the goodwill being impaired first. Impairment
losses of goodwill are not subsequently reversed.
Where goodwill forms part of a cash generating unit and part
of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the
carrying amount of the operation when determining the gain or
loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured on the
basis of the relative values of the operation disposed of and the
portion of the cash generating unit retained.
2.19 Intangible assets
Acquired both separately and from a
business combination
Intangible assets acquired separately are capitalised at cost
and from a business combination are capitalised at fair value
as at the date of acquisition.
Following initial recognition, the cost model is applied to the
class of intangible assets.
2.20 Trade and other payables
Liabilities for trade creditors and other amounts are carried at
amortised cost, which is the fair value of the consideration to
be paid in the future for goods and services received, whether
or not billed to the consolidated entity. Payables to related
parties are carried at the amortised cost.
Interest, when charged by the lender, is recognised on an
effective interest rate basis.
Deferred cash settlements are recognised at the present
value of the outstanding consideration payable on the
acquisition of an asset discounted at prevailing commercial
borrowing rates.
Interest, when charged on payables to related parties, is
recognised as an expense on an accrual basis using the
effective interest method.
2.21 Deposits
All deposits and borrowings are initially recognised at cost,
being the fair value of the consideration received net of issue
costs associated with the borrowing. After initial recognition,
interest-bearing borrowings are subsequently measured at
amortised cost using the effective interest method. Amortised
cost is calculated by taking into account any issue costs, and
any discount or premium on settlement.
Gains and losses are recognised in the income statement
when the liabilities are derecognised and as well as through
the amortisation process.
2. Summary of significant
accounting policies (continued)
The useful lives of these intangible assets are assessed to be
either finite or indefinite.
Where amortisation is charged on assets with finite lives, this
expense is taken to the income statement. Intangible assets,
excluding development costs, created within the business are
not capitalised and expenditure is charged against profits in
the year in which the expenditure is incurred.
Intangible assets are tested for impairment where an indicator
of impairment exists, and in the case of indefinite useful
life intangibles, annually, either individually or at the cash
generating unit level. Useful lives are also examined on an
annual basis and adjustments, where applicable, are made on
a prospective basis.
The only intangible asset with an indefinite useful life
currently carried by the Group is the trustee licence relating to
Sandhurst Trustees Limited.
Computer software
Computer software, other than software that is an integral
part of the computer hardware, is capitalised as intangible
software and amortised on a straight-line basis over the useful
life of the asset.
Research and development costs
Research costs are expensed as incurred.
Development expenditure incurred on an individual project
is carried forward when it is probable the future economic
benefits attributable to the asset will flow to the Group.
Following the initial recognition of the development
expenditure, the cost model is applied requiring the asset
to be carried at cost less any accumulated amortisation and
accumulated impairment losses.
Any expenditure carried forward is amortised over the period
of expected future sales from the related project or expected
useful life.
The carrying value of development costs is reviewed for
impairment annually when the asset is not yet in use, or more
frequently when an indicator of impairment arises during the
reporting period indicating that the carrying value may not be
recoverable.
A summary of the policies applied to the Group's intangible
assets (excluding goodwill) is as follows:
Useful lives
Method used
Trustee Licence
Indefinite
Not amortised or revalued
Computer software/
Development costs
Finite
Intangible assets acquired in
business combination
Finite
Usually not in excess of 5 years – straight
line (major software systems – 7 years)
Amortised to reflect period and
pattern of economic benefits
Internally generated/acquired
Acquired
Internally generated or acquired
Acquired
Impairment test/recoverable
amount testing
Annually and where an indicator
of impairment exists
Annually and where an indicator of
impairment exists
Annually and where an indicator of
impairment exists
71
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and
are recognised in the income statement where the asset is
derecognised.
Annual Financial Report Period ending 30 June 2013
2. Summary of significant
accounting policies (continued)
2.22 Provisions
Provisions are recognised when the Group has a legal,
equitable or constructive obligation to make a future sacrifice
of economic benefits to other entities as a result of past
transactions or other past events, and it is probable that a
future sacrifice of economic benefits will be required and a
reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected cash flows at a
pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific
to the liability.
Where discounting is used, the increase in the provision due
to the passage of time is recognised as a finance cost.
A provision for dividend is not recognised as a liability unless
the dividend is declared, determined or publicly recommended
on or before the reporting date.
2.23 Employee benefits
Wages and Salaries, Annual leave and Sick leave
Liabilities for wages and salaries have been recognised and
measured as the amount which the Group has a present
obligation to pay, at balance date, in respect of employees'
service up to that date. Liabilities have been calculated at
nominal amounts based on wage and salary rates current
at balance date and include related on-costs. Wages and
salaries liabilities are recognised in payables.
Annual leave liabilities are accrued on the basis of full pro
rata entitlement at their nominal amounts, being the amounts
estimated to apply when the leave is paid. Sick leave bonus
liability has been calculated at balance date in accordance
with the relevant Group policy, which provides entitlement
dependent on an individual employees’ years of service and
unused sick leave.
Long Service Leave
Long service leave has been assessed at full pro rata
entitlement in respect of all employees with more than one
year’s service. The amount provided meets the requirement
of Accounting Standard AASB 119 Employee Benefits, which
requires the assessment of the likely number of employees
that will ultimately be entitled to long service leave, the
estimated salary rates that will apply when the leave is paid,
discounted to take account of the time value of money.
Annual leave, sick leave and long service leave liabilities are
recognised in provisions.
Superannuation
Accumulation fund
Contributions are made to an employee accumulation
superannuation fund and are charged to expenses when
incurred.
72
Defined benefit plan
Contributions made to the defined benefit plan by entities
within the consolidated entity are added to the superannuation
asset in the balance sheet. Any actuarial gains or losses are
applied to the retained earnings with other fund movements
being recognised in the statement of comprehensive income.
2.24 Share based payments
The Group provides benefits to its employees (including key
management personnel) in the form of share-based payments,
whereby employees render services in exchange for shares,
rights or options over shares.
There are a number of plans in place to provide these benefits:
1. the Employee Share Plan (ESP), which provides
benefits only to the general staff. Executives
(including the Managing Director) may not participate
in it.
Under the terms of the ESP, shares are issued at the prevailing
market value at the time of the issues. The shares must be paid
for by the staff member. The ESP provides staff members with
an interest-free loan for the sole purpose of acquiring Bendigo
and Adelaide Bank shares. Dividends paid on shares issued
under the plan are applied primarily to repay the loans. Staff
cannot deal in the shares until the loan has been repaid.
The unpaid portion of the issued shares, reflected in the
outstanding balance of interest-free loans advanced to
employees, is accounted for as ESP shares. The outstanding
loan value of the ESP shares is deducted from equity in the
balance sheet.
The cost of issues under the plan is measured by reference
to the fair value of the equity instruments at the date at
which they are granted. Shares granted under the ESP, vest
immediately and are expensed to the Income Statement with
the employee benefits reserve increasing by a corresponding
amount.
The last issue under this plan was made in January 2008.
2. the Employee Share Grant Scheme
This Plan was introduced in 2008 and is open to employees
(excluding directors and senior executives) of Bendigo and
Adelaide Bank and its subsidiaries. Employees may be granted
shares annually up to a maximum number determined by the
directors having regard to the Bank’s performance. When an
eligible employee accepts an invitation to participate in the
Scheme, the trustee of the Scheme will acquire shares on
behalf of the employee and hold the shares on trust for the
employee. Three years after the trustee acquires the shares,
they will be transferred to the employee.
The cost of issues under the Scheme is measured by
reference to the fair value of the equity instruments at the
date at which they are granted. Shares granted under the
Scheme vest immediately and are expensed to the Income
Statement with the employee benefits reserve increasing by a
corresponding amount.
3. Employee Salary Sacrifice, Deferred Share and
Performance Share Plan
This Plan was introduced in September 2008 as the Employee
Salary Sacrifice and Deferred Share Plan, as a vehicle for
employees to purchase shares in the Bank via salary sacrifice.
It was amended in August 2009 to allow for the grant of
performance shares. Performance shares may be granted to
any person employed by or on behalf of a group company who
the Board decides are eligible to receive grants. The employee
will not have beneficial title to the underlying shares until the
relevant performance conditions have been met. The shares
will be held by a trustee until that time.
2. Summary of significant
accounting policies (continued)
The cost of equity-settled transactions under this Plan
is measured by reference to the fair value of the equity
instruments at the date at which they are granted. The fair
value is determined with the assistance of an external valuer
using a binomial model.
The cost of equity-settled transactions is recognised, together
with a corresponding increase to employee benefits reserve,
over the period in which the performance conditions are
fulfilled (the vesting period), ending on the date on which the
relevant executive becomes fully entitled to the award.
The dilutive effect, if any, of outstanding options is reflected
as additional share dilution in the computation of diluted
earnings per share.
4. The Executive Incentive Plan (EIP), which provides
for grants of performance options and rights to
key executives, including the Managing Director
(discontinued).
Under the EIP, eligible executives are granted options and
performance rights subject to performance conditions set by
the Board. If the performance conditions are satisfied during
the relevant performance period, the options and performance
rights will vest.
The cost of these equity-settled transactions under the
EIP is measured by reference to the fair value of the equity
instruments at the date at which they are granted. The fair
value is determined with the assistance of an external valuer
using a binomial model.
The cost of equity-settled transactions is recognised, together
with a corresponding increase to employee benefits reserve,
over the period in which the performance conditions are
fulfilled (the vesting period), ending on the date on which the
relevant executive becomes fully entitled to the award.
The dilutive effect, if any, of outstanding options is reflected
as additional share dilution in the computation of diluted
earnings per share.
2.25 Leases
The determination of whether an arrangement is/or contains
a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or
assets and the arrangement conveys a right to use the asset.
Lease payments for operating leases, where substantially all
the risks and benefits remain with the lessor, are charged as
expenses over the period of the lease on a straight-line basis
unless another systematic basis is more representative of the
time pattern of the benefit.
The Group has no leases deemed to be finance leases
where substantially all the risks and benefits incidental to
the ownership of the asset, but not the legal ownership, are
transferred to entities within the Group.
2.26 Financial guarantees
Bank guarantees have been issued by the bank on behalf of
customers whereby the bank is required to make specified
payments to reimburse the holders for a loss they may incur
because the customer fails to make a payment.
The fair value of financial guarantee contracts has been
assessed using a probability weighted discounted cash flow
approach.
In order to estimate the fair value under this approach the
following assumptions have been made:
> Probability of default (PD): This represents the
likelihood of the guaranteed party defaulting in a 1
year period and is assessed on historical default
rates.
> Loss given default (LGD): This represents the
proportion of the exposure that is not
expected to be recovered in the event of a default by
the guaranteed party and is based
on historical experience.
> Exposure to default (EAD): This represents the
maximum loss that Bendigo and Adelaide Bank is
exposed to if the guaranteed party were to default.
The model assumes that the guaranteed loan/facility/
contract is at maximum possible exposure at the time
of default.
The value of the financial guarantee over each future year of
the guarantees’ life is then equal to PD x LGD x EAD, which
is discounted over the contractual term of the guarantee, to
reporting date to determine the fair value. The discount rate
adopted is the five year Commonwealth government bond yield
at 30 June. The contractual term of the guarantee matches
the underlying obligations to which it relates.
As guarantees issued by the bank are fully secured and the
bank has therefore never incurred a loss in relation to financial
guarantees, the LGD (proportion of the exposure that is not
expected to be recovered) is zero.
Therefore, the fair value of financial guarantees has not been
included in the balance sheet. The nominal value of financial
guarantees is disclosed in the “Contingent liabilities” note of
this financial report.
2.27 Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the entity and the revenue can
be reliably measured. The following specific recognition criteria
must also be met before revenue is recognised.
Interest, fees and commissions
Control of a right to receive consideration for the provision of,
or investment in, assets has been attained.
Interest, fee and commission revenue is brought to account
on an accruals basis. Interest is accrued using the effective
interest rate method, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial instrument.
73
Annual Financial Report Period ending 30 June 2013
2. Summary of significant
accounting policies (continued)
Loan origination and loan application fees
Loan origination and application fees are recognised as
components of the calculation of the effective interest rate
method in relation to originated loans. They therefore affect
the interest recognised in relation to this portfolio of loans.
The average life and interest recognition pattern of loans in
the relevant loan portfolios is reviewed annually to ensure
the amortisation methodology for loan origination fees is
appropriate.
Unearned income
Unearned income on the Group's personal lending and leasing
is brought to account over the life of the contracts on an
actuarial basis.
Loan portfolio premium
The loan portfolio premium is included as part of net loans
and receivables in the balance sheet. The amortisation of the
loan portfolio premium is charged to the income statement on
an effective yield basis and is included in net interest income.
Day 1 Profit
Where the transaction price in a non-active market is different
to the fair value from other observable market transactions
in the same instrument or based on a valuation technique
whose variables include only data from observable markets,
the Bank immediately recognises the difference between the
transaction price and fair value (a 'Day 1' profit) in the income
statement in 'Other income'.
Dividends
Dividends are recognised when control of a right to receive
consideration for the investment in assets is established.
2.28 Borrowing costs
Borrowing costs are recognised as an expense when incurred
unless they are incurred in relation to qualifying assets.
Borrowing costs for qualifying assets are capitalised as part of
the cost of that asset.
2.29 Income tax
The income tax for the period is the tax payable on the current
period's taxable income based on the national income tax
rate, adjusted for changes in deferred tax assets and liabilities
and unused tax losses.
The Group has adopted the balance sheet liability method
of tax effect accounting, which focuses on the tax effects of
transactions and other events that affect amounts recognised
in either the balance sheet or a tax-based balance sheet.
Deferred tax assets and liabilities are recognised for
temporary differences, except where the deferred tax asset/
liability arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit
nor taxable profit or loss.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly in equity.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets
and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible
temporary differences, and the carry-forward of unused tax
assets and unused tax losses can be utilised.
74
he carrying amount of deferred income tax assets is reviewed at
each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred tax balances are reviewed annually to
determine whether they should be recognised.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset
is realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
balance sheet date.
2.30 Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the
amount of GST except:
> where the GST incurred on a purchase of goods
and services is not recoverable from the taxation
authority, in which case the GST is recognised as
part of the cost of acquisition of the asset or as
part of the expense item as applicable; and
> receivables and payables are stated with the
amount of GST included.
The net amount of GST recoverable from or payable to
the taxation authority is included as part of receivables or
payables in the balance sheet. Cash flows are included in the
cash flow statement on a gross basis, the GST component
of cash flows arising from investing and financing activities,
which are recoverable from or payable to the taxation authority
are classified as operating cash flows.
2.31 Derecognition of financial instruments
The derecognition of a financial instrument takes place when
the Group no longer controls the contractual rights that
comprise the financial instrument, which is normally the case
when the instrument is sold, or all the cash flows attributable
to the instrument are passed through to an independent third
party.
2.32 Derivative financial instruments
The Group uses derivative financial instruments such as
foreign currency contracts and interest rate swaps to hedge
its risks associated with interest rate and foreign currency
fluctuations. Such derivative financial instruments are stated
at fair value.
The fair value of forward exchange contracts is calculated
by reference to current forward exchange rates with similar
maturity profiles. The fair value of interest rate swap contracts
is determined by discounting the expected future cash flows
associated with the swaps. Discount rates are determined
by reference to swap curves available through independent
market data providers.
For the purpose of hedge accounting, hedges are classified
as either fair value hedges when they hedge the exposure to
changes in the fair value of a recognised asset or liability, or
cash flow hedges where they hedge exposure to variability
in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a forecasted
transaction.
In relation to fair value hedges which meet the conditions
for hedge accounting, any gain or loss from remeasuring the
hedging instrument at fair value is recognised immediately in
the income statement.
Any gain or loss attributable to the hedged risk on
remeasurement of the hedged item is adjusted against the
carrying amount of the hedged item and recognised in the
income statement. Where the adjustment is to the carrying
2. Summary of significant
accounting policies (continued)
amount of a hedged interest-bearing financial instrument, the
adjustment is amortised to the income statement such that it
is fully amortised by maturity.
In relation to cash flow hedges, to hedge firm commitments
which meet the conditions for hedge accounting, the
portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised directly in
equity and the ineffective portion is recognised in the income
statement.
The Group tests each of the designated cash flow hedges for
effectiveness on a monthly basis both retrospectively and
prospectively using regression analysis. A minimum of 30
data points is used for regression analysis and if the testing
falls within the 80:125 range the hedge is considered highly
effective and continues to be designated as a cash flow hedge.
When the hedged firm commitment results in the recognition
of an asset or liability, then, at the time the asset or liability
is recognised, the associated gains or losses that had
previously been recognised in equity are included in the initial
measurement of the acquisition cost or other carrying amount
of the asset or liability. For all other cash flow hedges, the
gains or losses that are recognised in equity are transferred
to the income statement in the same year in which the hedged
firm commitment affects the net profit and loss, for example
when the future sale actually occurs.
For derivatives that do not qualify for hedge accounting, any
gains or losses arising from changes in fair value are taken
directly to net profit or loss for the year.
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised, or no
longer qualifies for hedge accounting.
At that point in time, any cumulative gain or loss on the
hedging instrument recognised in equity is kept in equity until
the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in equity is transferred to
net profit or loss for the year.
2.33 Issued ordinary capital
Issued and paid up ordinary capital is recognised at the fair
value of the consideration received by the company. Any
transaction costs (net of any tax benefit) arising on the issue
of ordinary shares are recognised directly in equity as a
reduction of the share proceeds received.
2.34 Hybrid capital instruments
Perpetual non-cumulative redeemable convertible
preference shares
Preference capital is recognised at the fair value of the
consideration received by the company. Any transaction costs
(net of any tax benefit) arising on the issue of preference
shares are recognised directly in equity as a reduction of
the share proceeds received. Dividends on the shares are
recognised as a distribution of equity.
Convertible preference shares
These instruments are classified as debt within the balance
sheet and distributions to the holders are treated as interest
expense in the income statement.
Step up preference shares
These instruments are classified as equity and the dividends
are recognised as a distribution of equity.
2.35 Earnings per ordinary share (EPS)
Basic EPS is calculated as net profit attributable to members,
adjusted to exclude cost of servicing equity (other than
dividends) and preference share dividends, divided by the
weighted average number of ordinary shares, adjusted for any
bonus element.
Diluted EPS is calculated as net profit attributable to
members, adjusted for:
> costs of servicing equity (other than dividends),
preference share dividends; the after tax effect
of dividends and interest associated with
dilutive potential ordinary shares that have been
recognised as expenses; and
> other non-discretionary changes in revenues or
expenses during the period that would result from
the dilution of potential ordinary shares;
divided by the weighted average number of ordinary shares
and dilutive potential ordinary shares, adjusted for any bonus
element.
Cash basis EPS is calculated as net profit attributable to
members, adjusted for:
> after tax intangibles amortisation (except
intangible software amortisation);
> after tax specific income and expense items; and
> costs of servicing equity (other than dividends)
and preference share dividends;
divided by the weighted average number of ordinary shares,
adjusted for any bonus element.
3. Segment results
Segment information
The Group has identified its operating segments based on the
internal reports that are reviewed and used by the executive
management team in assessing performance and determining
the allocation of resources.
The operating segments are identified according to the
nature of products and services provided and the key delivery
channels, with each segment representing a strategic
business unit that offers a different delivery method and/or
different products and services. Discrete financial information
about each of these operating businesses is reported to the
executive management team on a monthly basis.
Segment assets and liabilities reflect the value of loans and
deposits directly managed by the operating segment. All other
assets of the Group are managed centrally.
Types of products and services
Retail banking
Net interest income predominantly derived from the provision
of first mortgage finance and deposit facilities; and fee income
from the provision of banking services delivered through the
company-owned branch network and the Group's share of net
interest and fee income from the Community Bank® branch
network. Delphi Bank (formally Bank of Cyprus Australia) and
Community Telco® Australia are included within the retail
banking operating segment.
75
Annual Financial Report Period ending 30 June 2013
3. Segment results (continued)
Third Party Banking
Net interest income and fees derived from the manufacture
and processing of residential home loans, distributed through
mortgage brokers, mortgage managers, mortgage originators
and Alliance partners.
Wealth
Fees, commissions and interest from the provision of financial
planning services, wealth management and margin lending
activities. Commission received as Responsible Entity for
managed investment schemes and for corporate trusteeships
and other trustee and custodial services.
Rural Bank
The principal activities of Rural Bank are the provision of banking
services to agribusiness, rural and regional Australian communities.
Central functions
Functions not relating directly to a reportable operating segment.
Accounting policies and inter-segment transactions
The accounting policies used by the Group in the reporting
segments internally are the same as those contained in note
2 of the accounts.
Revenue and expenses associated with each business
segment are included in determining their result. Transactions
between business segments are based on agreed recharges
between operating segments. Segment net interest income
is recognised based on an internally set transfer pricing
policy based on pre-determined market rates of return on the
assets and liabilities of the segment. These rates are at the
beginning of each reporting period and applied throughout
that period. It is likely that rates will be reset for the 2014
financial year; however this is subject to a management
review. Management use these apportionments to assess
relative performance between operating segments rather than
absolute assessments of year on year performance.
Major customers
Revenues from no individual customer amount to greater than
10 percent of the Group's revenues.
For the year ended 30 June 2013
Operating segments
Net interest income
Other income
Share of net profit of equity accounted investments
Total segment income
Operating expenses
Credit expenses
Segment result
Retail
banking
Third party
banking
Wealth
Rural Bank
Total
operating
segments
Central
functions
$m
613.0
188.8
-
801.8
545.6
25.2
231.0
$m
227.0
48.0
-
$m
74.8
39.5
-
$m
$m
112.7
1,027.5
5.9
-
282.2
-
275.0
114.3
118.6
1,309.7
81.1
27.0
166.9
86.5
1.9
25.9
51.0
15.8
51.8
764.2
69.9
475.6
$m
-
13.4
1.6
15.0
14.8
-
0.2
For the year ended 30 June 2012
Operating segments
Net interest income
Other income
Share of net profit of equity accounted investments
Total segment income
Operating expenses
Credit expenses
Segment result
76
Retail
banking
Third party
banking
Wealth
Rural Bank
Total
operating
segments
Central
functions
$m
538.6
178.8
-
717.4
533.8
13.8
169.8
$m
215.7
26.8
-
$m
80.4
47.8
-
$m
115.4
5.7
-
$m
950.1
259.1
-
242.5
128.2
121.1
1,209.2
67.2
6.2
169.1
81.9
0.4
45.9
56.2
12.0
52.9
739.1
32.4
437.7
$m
-
16.0
0.7
16.7
12.6
-
4.1
Operating segments
Retail
banking
Third party
banking
Wealth
Rural Bank
Total
operating
segments
Central
functions
Reportable segment assets
$m
$m
$m
$m
$m
$m
Total
$m
1,027.5
295.6
1.6
1,324.7
779.0
69.9
475.8
Total
$m
950.1
275.1
0.7
1,225.9
751.7
32.4
441.8
Total
$m
As at 30 June 2013
As at 30 June 2012
Reportable segment liabilities
As at 30 June 2013
As at 30 June 2012
28,107.4
16,296.9
1,970.7
4,341.4
50,716.4
9,565.8
60,282.2
26,238.4
16,112.3
2,408.0
3,983.9
48,742.6
8,495.2
57,237.8
33,687.4
31,840.8
475.0
517.9
4,725.4
5,102.3
3,645.7
42,533.5
6,914.1
49,447.6
3,472.2
40,933.2
5,675.9
46,609.1
3. Segment results (continued)
Reconciliation between segment and statutory results
The table below reconciles the segment result back to the
relevant statutory result presented in the financial report.
Reconciliation of total segment income to group income
Total segment income
Ineffectiveness in cash flow hedges
Specific income items 1
Total group income
Reconciliation of segment expenses to group total expenses
Segment operating expenses
Specific expense items 1
Total group expenses
Reconciliation of segment credit expenses to bad and doubtful debts on loans and receivables
Segment credit expenses
Bad and doubtful debts on loans and receivables
Reconciliation of segment result to group profit before tax
Total segment result
Ineffectiveness in cash flow hedges
Specific income items 1
Specific expense items 1
Group profit before tax
1 refer note 5 for details of specific items
Reportable segment assets
Total assets for operating segments
Total assets
Reportable segment liabilities
Total liabilities for operating segments
Securitisation funding
Total liabilities
Geographical Information
The allocation of revenue and assets is based on the
geographical location of the customer. The Group operates
in all Australian states and territories, providing banking and
other financial services.
Consolidated
June 2013
Full year
$m
June 2012
Full year
$m
1,324.7
(1.8)
26.4
1,225.9
(13.0)
-
1,349.3
1,212.9
779.0
12.8
791.8
69.9
69.9
475.8
(1.8)
26.4
(12.8)
487.6
751.7
102.7
854.4
32.4
32.4
441.8
(13.0)
-
(102.7)
326.1
Consolidated
As at
June 2013
As at
June 2012
$m
$m
60,282.2
60,282.2
57,237.8
57,237.8
49,447.6
6,400.6
55,848.2
46,609.1
6,411.0
53,020.1
77
Annual Financial Report Period ending 30 June 2013 4. Profit
Profit before income tax expense has been determined as follows:
Consolidated
2013
$m
2012
$m
Parent
2013
$m
(a) Income:
Interest income
Controlled entities
Cash and cash equivalents
Loans and other receivables
Other persons/entities
Cash and cash equivalents
Financial assets (treasury) held for trading
Financial assets (treasury) available for sale
Financial assets (treasury) held to maturity
Loans and other receivables
Total interest income
Interest expense
Controlled entities
Wholesale - domestic
Other persons/entities
Deposits
Retail
Wholesale - domestic
Wholesale - offshore
Other borrowings
Notes payable
Reset preference shares
Convertible preference shares
Subordinated debt
Total interest expense
Total net interest income
Other revenue
Dividends
Controlled entities
Joint ventures
Other
Distribution from unit trusts
78
Fees
Assets
Liabilities & electronic delivery
Securitisation income
Trustee, management & other services
Other
2012
$m
0.3
84.9
3.1
211.3
21.2
-
-
-
3.2
147.2
18.5
37.4
2,867.4
3,073.7
-
-
4.2
211.3
26.1
29.5
3,169.7
3,440.8
-
50.2
2.7
147.2
14.4
-
2,286.0
2,500.5
2,296.3
2,617.1
-
-
1.8
0.9
1,578.7
1,828.5
1,415.0
170.8
10.0
247.3
1.8
10.1
27.5
190.3
4.4
421.5
5.5
-
40.5
162.6
10.0
4.5
1.8
10.1
22.0
1,617.2
183.2
4.3
14.0
5.5
-
33.4
2,046.2
1,027.5
2,490.7
950.1
1,627.8
872.7
1,858.5
758.6
-
0.2
-
0.5
0.7
61.3
83.0
1.6
5.3
16.4
167.6
-
0.4
7.1
0.3
7.8
57.3
84.0
7.4
5.7
16.8
171.2
115.4
0.1
0.2
-
115.7
48.1
80.6
-
0.4
16.1
145.2
6.8
0.4
0.1
-
7.3
46.7
83.2
7.4
0.4
16.4
154.1
4. Profit (continued)
Commissions
Wealth solutions
Insurance
Other
Other
Income from property
Foreign exchange income
Factoring products income
Trading profit - held for trading securities
Profit/(loss) on disposal of property, plant & equipment
Homesafe revaluation income
Other
Other income
Ineffectiveness in cash flow hedges
Profit on disposal of IOOF shares
(Loss) on disposal of RMBS notes
Share of associates' and joint ventures net profits/(losses)
(b) Expenses
Bad and doubtful debts
Specific provision
Collective provision
Bad debts written off
Bad debts recovered
Staff and related costs
Salaries, wages and incentives
Superannuation contributions
Provision for annual leave
Provision for long service leave
Other provisions
Payroll tax
Fringe benefits tax
Executive equity transactions expense
Other
Consolidated
2013
$m
29.7
16.2
(1.2)
44.7
1.9
17.0
13.6
2.9
0.2
25.1
21.9
82.6
(1.8)
38.7
(12.3)
24.6
1.6
64.8
2.7
5.2
(2.8)
69.9
341.4
29.5
2.5
4.7
0.5
18.2
2.9
0.2
7.1
2012
$m
29.1
15.6
(1.1)
43.6
2.1
15.9
12.2
2.4
0.4
2.5
17.0
52.5
(13.0)
-
-
(13.0)
0.7
44.9
(10.2)
2.1
(4.4)
32.4
320.9
28.0
0.1
8.3
0.6
18.2
2.3
2.2
7.2
Parent
2013
$m
0.3
14.5
1.1
15.9
1.7
16.8
13.6
2.9
0.2
-
17.9
53.1
(6.6)
-
(12.3)
(18.9)
1.9
47.1
2.9
4.5
(2.7)
51.8
303.6
26.2
2.9
5.4
0.5
16.0
2.6
0.1
6.3
2012
$m
-
13.4
1.0
14.4
4.9
15.4
12.2
2.6
0.3
-
15.7
51.1
(13.8)
-
-
(13.8)
1.1
29.3
(8.7)
1.2
(4.0)
17.8
282.6
24.5
(1.0)
6.9
0.6
16.0
1.8
1.9
6.2
407.0
387.8
363.6
339.5
79
Annual Financial Report Period ending 30 June 2013 4. Profit (continued)
Occupancy costs
Operating lease rentals
Depreciation of buildings
Amortisation of leasehold improvements
Property rates and outgoings
Land tax
Repairs and maintenance
Utilities
Cleaning
Other
Amortisation of intangibles
Amortisation of intangible assets
Amortisation of intangible software
Impairment losses on goodwill
Property, plant & equipment costs
Depreciation of property, plant & equipment
Fees and commissions
Employee shares shortfall/(gain)
Impairment loss on held for sale asset
Integration costs
Other
Administration expenses
Communications, postage and stationery
Computer systems and software costs
Advertising & promotion
Other product & services delivery costs
Impairment loss - assets available for sale, equity investments
Consultancy expense
Legal expense
Travel expense
General administration expenses
Listing and rating agency costs
Other
Total other
80
Consolidated
2013
$m
2012
$m
Parent
2013
$m
40.4
37.6
-
7.3
4.3
0.4
6.6
4.3
4.3
3.0
0.3
6.5
3.9
0.4
6.7
3.6
3.8
2.8
70.6
65.6
24.1
19.7
43.8
6.2
10.6
28.6
(3.3)
-
9.9
33.0
64.6
32.0
35.4
-
9.1
3.2
6.7
33.3
0.8
0.3
218.4
27.8
16.2
44.0
95.1
11.4
30.4
1.1
3.8
2.7
34.2
55.2
30.6
35.8
-
7.4
7.3
6.6
32.9
2.0
0.5
212.5
40.0
-
7.1
4.2
0.4
4.6
4.2
4.2
2.9
67.6
15.3
17.8
33.1
-
10.2
10.0
(3.3)
-
9.9
37.3
53.6
29.1
35.3
-
8.4
2.8
5.7
30.8
0.6
2.8
206.4
2012
$m
36.8
-
6.2
3.8
0.4
4.6
3.5
3.7
2.3
61.3
19.4
15.2
34.6
95.1
10.8
9.4
1.1
-
2.7
32.3
49.2
27.4
35.4
9.5
6.4
6.9
5.7
28.4
1.6
1.5
204.3
5. Cash earnings
Cash earnings is used to represent the performance of the
core business activities.
Profit after income tax expense
Adjusted for
Specific items after tax 1
Amortisation of acquired intangibles after tax
Distributions paid on preference shares
Distributions paid on step-up preference shares
Cash basis earnings after tax
Specific income and expense items after tax comprise: 1
Income
Ineffectiveness in cash flow hedges expense
Profit on sale of IOOF shares
Loss on sale of RMBS notes
Expense
Shortfall/(Gain) relating to Employee Share Plan
Integration costs
Impairment loss on held for sale asset
Impairment loss goodwill
Specific tax benefits
De-recognition of deferred tax asset
Non deductible wealth management rights
Non deductible unrealised hedges at acquisition
Consolidated
2013
$m
352.3
(14.7)
16.9
(3.1)
(3.4)
348.0
1.3
(38.7)
8.6
(2.3)
6.9
-
6.2
3.3
-
-
(14.7)
2012
$m
195.0
117.0
19.5
(3.9)
(4.6)
323.0
9.1
-
-
0.8
2.6
2.7
95.1
-
4.3
2.4
117.0
1 Specific items are those items that are deemed to be outside of our core activities and such items are not considered to be representative
of the Group’s ongoing financial performance.
Cash earnings is a non-IFRS key financial performance
measure used by the Bank. It is calculated by excluding
certain items which are included within the statutory net profit
attributable to owners of the company. These specified items
are excluded in order to better reflect what the Bank considers
to be the underlying performance of the Group. It is not a
statutory measure and it is not presented in accordance with
Australian Accounting Standards nor audited or reviewed in
accordance with Australian Auditing Standards. It does not
refer to any amount represented on a cash flow statement.
81
Annual Financial Report Period ending 30 June 2013 6. Income tax expense
Major components of income tax expense are:
Income statement
Current income tax
Current income tax charge
Retrospective change in tax legislation
Imputation credits
Adjustments in respect of current income tax of previous years
Deferred income tax
De-recognition of temporary differences
Retrospective change in tax legislation
Adjustments in respect of deferred income tax of previous years
Relating to origination and reversal of temporary differences
Income tax expense reported in the income statement
Statement of changes in equity
Deferred income tax related to items charged or credited directly in equity
Net gain on cash flow hedge
Net gain/(loss) on available-for-sale investments
Net loss on revaluation of land and buildings
Other
Income tax expense reported in equity
A reconciliation between tax expense and the product of accounting profit
before income tax multiplied by the Group's applicable income tax rate is as follows:
Income tax expense attributable to:
Accounting profit before income tax
The income tax expense comprises amounts set aside as:
Provision attributable to current year at statutory rate, being
Prima facie tax on accounting profit before tax
Under/(over) provision in prior years
Tax credits and adjustments
Expenditure not allowable for income tax purposes
Impairment Wealth Management goodwill
Other assessable income
Other non assessable income
Tax effect of tax credits and adjustments
Retrospective change in tax legislation
De-recognition of temporary differences
Utilisation of previously unrecognised tax losses
Other
Income tax expense reported in the consolidated income statement
82
Consolidated
2013
$m
143.7
-
(0.2)
(7.8)
3.8
-
(0.4)
(3.8)
135.3
22.2
(9.0)
(0.1)
0.7
13.8
2012
$m
138.6
3.2
(3.4)
2.3
-
3.5
(1.6)
(11.5)
131.1
11.1
(3.8)
-
(0.4)
6.9
Parent
2013
$m
208.3
-
(0.1)
(4.9)
0.4
-
(1.4)
(121.2)
81.1
16.1
1.3
(0.1)
0.7
18.0
2012
$m
(76.0)
1.7
(0.2)
2.2
-
2.6
(2.0)
162.4
90.7
7.0
(0.9)
-
(0.4)
5.7
487.6
326.1
436.3
196.2
146.3
(8.2)
(0.2)
6.4
-
0.9
(1.0)
0.1
-
3.8
(13.4)
0.6
135.3
97.8
0.7
(3.4)
2.9
28.5
-
-
1.0
6.7
-
-
(3.1)
131.1
130.9
(6.3)
(0.1)
4.5
-
0.6
(36.5)
-
-
0.4
(13.4)
1.0
81.1
58.9
0.2
(0.2)
5.7
28.5
-
(3.6)
0.1
4.3
-
-
(3.2)
90.7
6. Income tax expense (continued)
Deferred income tax
Deferred income tax at 30 June relates to the following:
Gross Deferred tax liabilities
Available-for-sale financial assets
Deferred expenses
Derivatives
Intangible assets on acquisition
Investment property
Lease receivable
Other
Gross Deferred tax assets
Derivatives
Employee entitlements
Intangible liabilities on acquisition
Losses available for offset against future taxable income
Prepaid income
Provisions
Other
Tax payable/(receivable) attributable to members of the tax consolidated group
At 30 June 2013, there is no unrecognised deferred income
tax liability (2012: Nil) for taxes that would be payable on the
unremitted earnings of certain of the Group’s subsidiaries
or joint ventures, as the Group has no liability for additional
taxation should such amounts be remitted.
At 30 June 2013, unused tax losses (capital in nature) of
$74.3 million (2012: $111.8 million) exist in the consolidated
group. Deferred tax assets have not been recognised in
respect of these losses as it is not probable that future
taxable capital gains will be available against which the
consolidated group can utilise the benefit of the losses.
Tax consolidation
Bendigo and Adelaide Bank Limited and its 100 percent owned
subsidiaries form the tax consolidated group. Members of the
Group entered into a tax sharing agreement to allocate income
tax liabilities to the wholly-owned subsidiaries should the head
entity default on its tax payment obligations. At the balance
date, the possibility of default is remote. The head entity of the
tax consolidated group is Bendigo and Adelaide Bank Limited.
Tax effect accounting by members of the tax
consolidated group
Members of the tax consolidated group have entered into a
tax funding agreement. The tax funding agreement provides
for the allocation of current taxes to members of the tax
Balance sheet
Consolidated
2013
$m
0.9
3.7
9.4
25.4
21.6
2.8
14.4
78.2
24.2
24.9
5.8
-
0.5
48.1
28.6
2012
$m
12.1
1.1
17.5
36.2
14.0
8.3
15.3
104.5
54.2
20.1
8.1
0.5
11.8
48.3
27.2
132.1
170.2
47.1
47.1
86.8
86.8
Parent
2013
$m
0.5
3.7
54.6
15.1
-
2.7
11.4
88.0
20.5
24.0
0.2
-
0.5
31.6
19.8
96.6
47.1
47.1
2012
$m
(0.7)
1.1
164.1
23.5
-
8.2
13.0
209.2
31.0
18.6
0.3
0.4
0.9
34.7
22.6
108.5
86.8
86.8
consolidated group on a Group allocation method based
on a notional standalone calculation, while deferred taxes
are calculated by members of the tax consolidated group in
accordance with AASB112 Income Taxes.
The allocation of taxes under the tax funding agreement
is recognised as an increase/decrease in the subsidiaries
inter-company accounts with the tax consolidated group head
company, Bendigo and Adelaide Bank Limited. The tax funding
agreement is in accordance with AASB Interpretation 1052 Tax
Consolidation Accounting (UIG 1052). Where the tax funding
agreement is not in accordance with UIG 1052, the difference
between the current tax amount that is allocated under the
tax funding agreement and the amount that is allocated
under an acceptable method is recognised as a contribution/
distribution in the subsidiaries' equity accounts.
Taxation of Financial Arrangements (TOFA)
The new taxing regime for financial instruments (TOFA) began
to apply to the Tax Consolidated group on 1 July 2010. The
regime aims to align the tax and accounting treatment of
financial arrangements.
The Tax Consolidated group made a transitional election to
bring pre-existing arrangements into TOFA. The deferred tax
in relation to the transitional adjustment that this created is
being amortised equally over the 2011 to 2014 years.
83
Annual Financial Report Period ending 30 June 2013
7. Capital management
a. Capital management
Bendigo and Adelaide Bank Limited key capital management
objectives are to:
> Maintain a sufficient level of capital above the
regulatory minimum to provide a buffer against
loss arising from unanticipated events, and allow
the Group to continue as a going concern;
> Optimise the level and use of capital resources
to enhance shareholder value through maximising
financial performance;
> Ensure that capital management is closely
aligned with the Group’s business and strategic
objectives; and
> Achieve progressive improvement to short and
long term credit ratings.
The Group manages capital adequacy according to the
framework provided by the APRA Prudential Standards. Capital
adequacy is measured at two levels:
> Level 1 includes Bendigo and Adelaide Bank
Limited and certain controlled entities that meet
the APRA definition of extended licensed entities;
and
> Level 2 consists of the consolidated group,
excluding non-controlled subsidiaries and
subsidiaries involved in insurance, funds
management, non-financial operations and
securitisation special purpose vehicles.
APRA determines minimum prudential capital ratios (eligible
capital as a percentage of total risk-weighted assets) that
must be held by all authorised deposit-taking institutions.
Accordingly, Bendigo and Adelaide Bank Limited is required to
maintain a minimum prudential capital ratio (eligible capital
as a percentage of total risk-weighted assets) at both Level
1 and Level 2 as determined by APRA. As part of the Group’s
capital management process, the Board considers the Group’s
strategy, financial performance objectives, credit ratings and
other factors relating to the efficient management of capital
in setting target ratios of capital above the regulatory required
levels. These processes are formalised within the Group’s
internal capital adequacy assessment process (or ICAAP).
The Basel III measurement and monitoring of capital has been
effective from 1 January 2013. The requirement defines what
is acceptable as capital. Regulatory capital is divided into
common equity tier 1, tier 1 and tier 2 capital.
Common equity tier 1 capital primarily consists of
shareholders equity less goodwill and other prescribed
adjustments. Tier 1 capital is comprised of common equity
tier 1 plus other highly rated capital instruments acceptable
to APRA. Tier 2 capital is comprised primarily of lower rated
hybrid and debt instruments acceptable to APRA.
Total capital is the aggregate of tier 1 and tier 2 capital.
The Group has adopted the Prudential Capital Adequacy
Standardised Approach to credit risk, operational risk and
market risk, which requires the Group to determine capital
requirements based on standards set by APRA. The Group has
satisfied the minimum capital requirements at Levels 1 and 2
throughout the 2012/13 financial year.
84
7. Capital management (continued)
b. Capital adequacy
Risk weighted capital ratios
Tier 1
Tier 2
Total capital ratio
Regulatory capital
Common Equity Tier 1
Contributed capital
Retained profits & reserves
Accumulated other comprehensive income (and other reserves)
Innovative Tier 1 capital
Less,
Consolidated
As at June 2013 *
As at June 2012
$m
$m
9.25%
1.46%
10.71%
3,758.0
320.7
(17.7)
-
8.39%
2.02%
10.41%
3,681.8
101.3
-
277.9
Intangible assets, cash flow hedges and capitalised expenses
1,637.3
1,583.9
Net deferred tax assets
Equity exposures
50/50 deductions
Other adjustments as per APRA advice
Total common equity tier 1 capital
Additional Tier 1 capital instruments
Total Additional Tier 1 Capital
Total Tier 1 Capital
Tier 2
Tier 2 capital instruments
General reserve for credit losses/collective provision (net of tax effect)
Asset revaluation reserves
Less,
50/50 deductions
Total Tier 2 capital
Total regulatory capital
Total risk weighted assets
Common Tier 1 Equity
6.6
27.8
-
2.4
2,386.9
438.5
438.5
-
-
8.5
92.4
-
2,825.4
2,376.2
290.8
154.1
-
444.9
-
444.9
3,270.3
434.6
144.4
1.9
580.9
8.5
572.4
2,948.6
30,530.2
28,310.1
85
7.82%
* Current year disclosures have been presented to reflect the requirements of Basel III effective from 1 January 2013.
Prior year comparatives have not been restated.
Annual Financial Report Period ending 30 June 2013 8. Earnings per ordinary share
Basic earnings per ordinary share
Diluted earnings per ordinary share
Cash basis earnings per ordinary share
Reconciliation of earnings used in the calculation of basic earnings per ordinary share
Profit after tax
Dividends paid on preference shares
Dividends paid/accrued on step up preference shares
Reconciliation of earnings used in the calculation of diluted earnings per ordinary share
Earnings used in calculating basic earnings per ordinary share
Dividends on dilutive preference shares
Reconciliation of earnings used in the calculation of cash basis earnings per ordinary share
Earnings used in calculating basic earnings per ordinary share
After tax intangibles amortisation (excluding software amortisation)
After tax specific income and expense items (Note 5)
Consolidated
2013
Cents per share
2012
Cents per share
84.9
77.9
85.4
$m
352.3
(3.1)
(3.4)
345.8
345.8
13.6
359.4
345.8
16.9
(14.7)
348.0
48.6
47.7
84.2
$m
195.0
(3.9)
(4.6)
186.5
186.5
12.4
198.9
186.5
19.5
117.0
323.0
Weighted average number of ordinary shares used in basic and cash basis earnings per ordinary share
407,408,624
383,463,802
Effect of dilution - executive performance rights
Effect of dilution - preference shares
Weighted average number of ordinary shares used in diluted earnings per ordinary share
889,445
53,006,660
461,304,729
1,149,679
32,352,260
416,965,741
No. of shares
No. of shares
Information on the classification of securities - Executive performance rights
Executive performance rights are treated as dilutive from the date of issue and remain dilutive so long as the performance conditions are satisfied. In the event of a
performance condition not being satisfied, the number of dilutive rights would be reduced to the number that would have been issued if the end of the period was the
end of the contingency period.
Potentially dilutive instruments
The following instruments are potentially dilutive as at the reporting date:
Preference shares
Step up preference shares
Reset preference shares *
Convertible preference shares *
Executive share options
Executive performance rights
86
Dilutive
2013
Yes
Yes
Yes
Yes
No
Yes
2012
Yes
Yes
Yes
-
No
Yes
* Reset preference shares were redeemed in November 2012 and convertible preference shares were issued in November 2012.
9. Dividends
Dividends paid or proposed
Ordinary shares
Dividends paid during the year
Current year
Consolidated
2013
$m
2012
$m
Parent
2013
$m
2012
$m
Interim dividend (30.0 cents per share) (2012 - 30.0 cents per share)
118.3
113.2
118.3
113.2
Previous year
Final dividend (30.0 cents per share) (2012 - 30.0 cents per share)
Dividends proposed since the reporting date, but not recognised as a liability
Final dividend (31.0 cents per share) (2012: 30.0 cents per share)
Franked dividends per ordinary shares (cents per share)
117.7
236.0
125.1
61.0
107.4
220.6
118.1
60.0
117.7
236.0
125.1
61.0
107.4
220.6
118.1
60.0
All dividends paid were fully franked. Proposed dividends will be fully franked out of existing franking credits or out of franking credits arising from payment of income
tax provided for in the financial statements for the year ended 30 June 2013.
Preference shares
Dividends paid during the year
91.81 cents per share paid on 17 September 2012 (2011: 115.07 cents)
87.54 cents per share paid on 17 December 2012 (2011: 111.11 cents)
77.63 cents per share paid on 15 March 2013 (2012: 105.50 cents)
83.45 cents per share paid on 17 June 2013 (2012: 104.87 cents)
Step up preference shares
Dividends paid during the year
105.00 cents per share paid on 10 July 2012 (2011: 116.00 cents)
94.00 cents per share paid on 10 October 2012 (2011: 118.00 cents)
87.00 cents per share paid on 10 January 2013 (2012: 114.00 cents)
83.00 cents per share paid on 10 April 2013 (2012: 108.00 cents)
Reset preference shares (recorded as debt instruments)
Dividends paid during the year:
309.68 cents per share paid on 1 November 2012 (2011: 310.53)
(May 2012: 307.16) Reset preference shares were fully repaid in November 2012
Convertible preference shares (recorded as debt instruments)
Dividends paid during the year:
65.49 cents per share paid on 13 December 2012 (2012: nil)
282.72 cents per share paid on 13 June 2013 (2012: nil)
0.8
0.8
0.7
0.8
3.1
1.1
0.9
0.9
0.8
3.7
2.8
-
2.8
1.8
7.6
9.4
1.0
1.0
1.0
0.9
3.9
1.2
1.2
1.1
1.1
4.6
2.8
2.7
5.5
-
-
-
0.8
0.8
0.7
0.8
3.1
1.1
0.9
0.9
0.8
3.7
2.8
-
2.8
1.8
7.6
9.4
1.0
1.0
1.0
0.9
3.9
1.2
1.2
1.1
1.1
4.6
2.8
2.7
5.5
-
-
-
87
Annual Financial Report Period ending 30 June 2013 9. Dividends (continued)
Consolidated
2013
$m
2012
$m
Parent
2013
$m
2012
$m
Dividend franking account
Balance of franking account as at end of financial year
257.3
189.5
Franking credits that will arise from the payment of income tax provided for in the
financial report
Impact of dividends proposed or declared before the financial report was authorised
for issue but not recognised as a distribution of equity holders during the period
47.1
86.8
(54.0)
250.4
(51.5)
224.8
The tax rate at which dividends have been franked is 30% (2012: 30%).
Dividends proposed will be franked at the rate of 30% (2012: 30%).
Dividend paid
Dividends paid by cash or satisfied by the issue of shares under the dividend
reinvestment plan during the year were as follows:
Paid in cash
Satisfied by issue of shares
166.1
76.4
242.5
149.7
79.3
229.0
166.1
76.4
242.5
149.7
79.3
229.0
Dividend Reinvestment Plan
The Dividend Reinvestment Plan provides shareholders with
the opportunity of converting their entitlement to a dividend
into new shares. The issue price of the shares is equal to the
volume weighted average share price of Bendigo and Adelaide
Bank shares traded on the Australian Securities Exchange
over the fifteen trading days following the Record Date. Shares
issued under this Plan rank equally with all other ordinary
shares.
Bonus Share Scheme
The Bonus Share Scheme provides shareholders with the
opportunity to elect to receive a number of bonus shares
issued for no consideration instead of receiving a dividend.
The issue price of the shares is equal to the volume weighted
average price of Bendigo and Adelaide Bank shares traded
on the Australian Securities Exchange over the fifteen trading
days following the Record Date. Shares issued under this
scheme rank equally with all other ordinary shares.
The last date for the receipt of an election notice for
participation in either the Dividend Reinvestment Plan or
Bonus Share Scheme for the 2013 final dividend was 29
August 2013.
88
10. Return on average ordinary equity
Return on average ordinary equity
Pre-specific items return on average ordinary equity
Cash basis return on average ordinary equity
Reconciliation of earnings used in the calculation of return on average ordinary equity
Net profit for the year
Dividends paid on preference shares
Dividends paid/accrued on step up preference shares
Earnings used in calculation of return on average ordinary equity
After tax specific income and expense items
Earnings used in calculation of pre-specific items return on average ordinary equity
After tax intangibles amortisation (excluding amortisation of intangible software)
Earnings used in calculation of cash basis return on average ordinary equity
Reconciliation of ordinary equity used in the calculation of return on average ordinary equity
Total equity
Preference share net capital
Asset revaluation reserve - available for sale investments
Unrealised gains/losses on cash flow hedge reserve
Acquisitions reserve
Ordinary equity
Average ordinary equity
The above calculation uses a twelve month rolling basis of calculation.
Consolidated
2013
%
8.52
8.16
8.58
$m
352.3
(3.1)
(3.4)
345.8
(14.7)
331.1
16.9
348.0
4,434.0
(188.5)
(2.8)
34.6
20.4
4,297.7
4,057.6
2012
%
4.84
7.88
8.36
$m
195.0
(3.9)
(4.6)
186.5
117.0
303.5
19.5
323.0
4,217.7
(188.5)
(26.9)
86.4
20.4
4,109.1
3,852.3
89
Annual Financial Report Period ending 30 June 2013 11. Net tangible assets per ordinary share
Net tangible assets per ordinary share
Reconciliation of net tangible assets used in calculation of net tangible assets per ordinary share
Net assets
Intangible assets and goodwill
Preference shares - face value
Step up preference shares - face value
Net tangible assets
Consolidated
2013
$
6.62
$m
4,434.0
(1,518.2)
(90.0)
(100.0)
2,725.8
2012
$
6.16
$m
4,217.7
(1,548.2)
(90.0)
(100.0)
2,479.5
Number of ordinary shares on issue at reporting date
412,007,864
402,233,266
12. Cash flow statement reconciliation
Profit after tax
Non-cash items
Doubtful debts expense
Amortisation
Depreciation
Revaluation (increments)/decrements
Equity settled transactions
Share of joint ventures' net profits
Profit/(loss) on sale of investment securities
Ineffectiveness in cash flow hedges
Changes in assets and liabilities
Increase/(decrease) in tax provision
Increase/(decrease) in deferred tax assets & liabilities
(Increase)/decrease in derivatives
(Increase)/decrease in accrued interest
Increase/(decrease) in accrued employees entitlements
Increase/(decrease) in other accruals, receivables and provisions
Net cash flows from operating activities
Consolidated
2013
$m
352.3
72.7
43.8
17.9
(24.8)
0.2
(1.6)
(26.4)
(1.8)
(39.7)
(64.4)
(97.2)
(58.7)
16.2
235.0
423.5
2012
$m
195.0
36.8
139.1
18.2
0.9
1.7
(0.7)
-
13.0
18.2
(7.8)
7.9
(39.3)
(4.4)
(178.7)
199.9
Parent
2013
$m
355.2
54.5
33.1
17.3
(0.2)
0.1
(1.9)
12.3
(6.6)
(39.7)
97.5
(390.2)
(41.3)
17.9
213.4
321.4
2012
$m
105.5
21.8
129.7
17.0
0.6
1.7
(1.1)
-
13.8
18.2
163.8
(546.3)
(21.1)
(7.5)
318.0
214.1
90
Cash flows presented on a net basis
Cash flows arising from the following activities are presented on a net basis in the cash flow statement:
Loans and other receivables, investment securities, retail deposits and wholesale deposits.
13. Cash and cash equivalents
Notes, coin and cash at bank
Investments at call
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes:
Cash and cash equivalents
Due from other financial institutions
Due to other financial institutions
Consolidated
Parent
2013
$m
249.2
134.6
383.8
383.8
293.9
(379.5)
298.2
2012
$m
244.2
44.6
288.8
288.8
272.2
(327.2)
233.8
2013
$m
143.4
114.7
258.1
258.1
292.2
(371.4)
178.9
14. Financial assets held for trading
Discount securities
Floating rate notes
Government securities
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Consolidated
Parent
2013
$m
2,351.5
1,122.1
1,991.6
5,465.2
2,028.0
2,400.1
1,037.1
-
2012
$m
2,656.7
706.6
1,002.8
4,366.1
1,387.6
2,334.6
643.9
-
2013
$m
2,352.1
1,122.1
1,991.6
5,465.8
2,028.0
2,400.1
1,037.1
0.6
2012
$m
131.2
44.6
175.8
175.8
266.3
(315.1)
127.0
2012
$m
2,657.6
706.6
1,002.8
4,367.0
1,387.6
2,334.6
643.9
0.9
5,465.2
4,366.1
5,465.8
4,367.0
91
Annual Financial Report Period ending 30 June 2013 15. Financial assets available for sale
– debt securities
Negotiable securities
Negotiable certificates of deposit
Mortgage backed securities
Notes to securitisations
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Recognised gains / (losses) before tax:
Gain/(loss) recognised directly in equity
16. Financial assets available for sale
– equity investments
Share investments at fair value
Listed share investments
Unlisted share investments
Fair value of share investments is determined as follows:
Listed shares - quoted market price at balance date.
Consolidated
2013
$m
109.5
426.0
-
535.5
95.5
47.2
392.8
-
535.5
2012
$m
92.7
352.1
-
444.8
105.3
41.6
297.9
-
Parent
2013
$m
-
426.0
936.9
1,362.9
629.6
32.4
392.8
308.1
2012
$m
-
352.1
1,242.5
1,594.6
813.1
65.4
297.9
418.2
444.8
1,362.9
1,594.6
2.9
(1.8)
2.9
(1.8)
Consolidated
2013
$m
1.4
16.7
18.1
2012
$m
109.5
15.2
124.7
Parent
2013
$m
1.4
3.1
4.5
2012
$m
1.4
2.7
4.1
Unlisted shares - estimated using valuation techniques based on assumptions that are not supported by observable market prices or rates.
Management believes the estimated fair values resulting from the valuation techniques and recorded in the balance sheet and the related
changes in fair values recorded in equity are reasonable and the most appropriate at the balance sheet date.
Recognised gains / (losses) before tax:
Gain/(loss) recognised directly in equity
Amount removed from equity and recognised in (profit)/loss
1.1
(37.1)
(9.6)
-
-
-
(0.1)
-
92
17. Financial assets held to maturity
Negotiable securities
Bank accepted bills of exchange
Negotiable certificates of deposit
Other
Non negotiable securities
Deposits - other
Other
Consolidated
2013
$m
-
289.8
30.6
320.4
1.6
1.3
2.9
2012
$m
9.9
328.5
47.1
385.5
1.6
1.3
2.9
Total financial assets held to maturity
323.3
388.4
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
295.3
10.0
14.6
3.4
323.3
331.5
38.4
15.0
3.5
388.4
Parent
2013
$m
2012
$m
-
-
0.5
0.5
-
1.3
1.3
1.8
-
-
-
1.8
1.8
-
-
0.5
0.5
-
1.3
1.3
1.8
-
-
-
1.8
1.8
93
Annual Financial Report Period ending 30 June 2013 18. Loans and other receivables
Loans and other receivables - investments
Overdrafts
Credit cards
Term loans
Margin lending
Lease receivables
Factoring receivables
Other
Consolidated
2013
$m
554.1
4,345.8
282.4
42,931.7
1,915.6
472.5
98.6
78.4
2012
$m
453.0
4,342.5
241.2
40,828.7
2,333.2
472.1
78.7
82.6
Parent
2013
$m
554.1
4,305.7
282.4
2012
$m
453.0
4,257.5
241.2
39,556.7
36,335.7
-
437.3
98.6
78.4
-
459.4
78.7
82.6
Gross loans and other receivables
50,125.0
48,379.0
44,759.1
41,455.1
Specific provision for impairment (Note 19)
Collective provision for impairment (Note 19)
Unearned income
Deferred Costs paid
Net loans and other receivables
Impaired loans
Loans - without provisions
- with provisions
Restructured Loans
less specific impairment provisions
Net impaired loans
(104.1)
(34.5)
(109.0)
(247.6)
80.0
(102.9)
(31.8)
(105.1)
(239.8)
77.8
(51.3)
(30.8)
(56.2)
(138.3)
70.5
(60.0)
(27.7)
(64.3)
(152.0)
63.5
49,957.4
48,217.0
44,691.3
41,366.6
135.8
191.7
62.6
(103.3)
286.8
98.7
224.0
35.8
(102.1)
256.4
18.6
89.0
18.0
(50.5)
75.1
32.1
94.6
35.7
(59.2)
103.2
Net impaired loans % of loans and other receivables
0.57%
0.53%
0.17%
0.25%
Portfolios facilities - past due 90 days, not well secured
less impairment provisions
Net portfolio facilities
Loans past due 90 days
4.2
(0.8)
3.4
3.7
(0.8)
2.9
4.2
(0.8)
3.4
3.7
(0.8)
2.9
Accruing loans past due 90 days, with adequate security balance
750.7
811.8
650.5
665.8
Net fair value of properties acquired through the enforcement of security
139.9
108.2
120.7
99.0
Interest income recognised
Interest income recognised in respect of impaired loans
Interest income forgone in respect of impaired loans
1.6
5.7
5.6
26.1
1.6
5.1
2.5
6.3
Interest income recognised is the interest income actually received subsequent to these balances becoming impaired or restructured.
Interest income forgone is the gross interest income that would have been recorded during the financial year had the interest on such loans been included in income.
94
Maturity analysis 1
At call / overdrafts
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Longer than 5 years
7,601.0
1,369.6
1,834.4
7,222.4
32,651.7
50,679.1
7,971.4
1,311.8
1,727.4
6,660.3
31,161.1
48,832.0
5,237.3
954.0
1,332.8
5,294.6
32,494.5
45,313.2
5,085.1
791.6
1,062.2
4,489.3
30,479.9
41,908.1
1 Balances exclude specific and general provisions for doubtful debts and unearned revenue, and are categorised by the contracted maturity date of each loan facility.
19. Impairment of loans and advances
Consolidated
Parent
Specific provision for impairment
Opening balance
Provision acquired in business combination
Transfer of business
Charged to income statement
Impaired debts written-off applied to specific impairment provision
Closing balance
Collective provision for impairment
Opening balance
Provision acquired in business combination
Transfer of business
Charged to income statement
Closing balance
General reserve for credit losses
Opening balance
Provision acquired in business combination
Transfer of business
Charged to equity
Closing balance
Bad and doubtful debts expense
Specific provisions for impairment
Collective provision
Bad debts written off
Bad debts recovered
Ratios
Specific provision as % of gross loans less unearned income
Collective provision (adjusted for tax) & general reserve for credit losses
as a % of risk-weighted assets
0.21%
0.53%
0.21%
0.53%
2013
$m
102.9
3.4
-
64.8
(67.0)
104.1
31.8
-
-
2.7
34.5
128.5
-
-
9.8
2012
$m
91.4
0.3
-
44.9
(33.7)
102.9
41.9
0.1
-
(10.2)
31.8
110.9
4.8
-
12.8
2013
$m
60.0
1.8
1.2
47.1
(58.8)
51.3
27.7
-
0.2
2.9
30.8
2012
$m
47.3
-
8.4
29.3
(25.0)
60.0
36.1
-
0.3
(8.7)
27.7
105.0
92.4
-
4.9
9.8
138.3
128.5
119.7
64.8
2.7
5.2
(2.8)
69.9
44.9
(10.2)
2.1
(4.4)
32.4
47.1
2.9
4.5
(2.7)
51.8
-
-
12.6
105.0
29.3
(8.7)
1.2
(4.0)
17.8
95
Annual Financial Report Period ending 30 June 2013
20. Particulars in relation to controlled entities
Chief entity
Bendigo and Adelaide Bank Limited
Directly Controlled Operating Entities 1, 2
AB Management Pty Ltd
ABL Custodian Services Pty Ltd
ABL NIM Pty Ltd
ABL Nominees Pty Ltd
Adelaide Managed Funds Ltd
ACN 092 167 904 (BOCA) Pty Ltd
Hindmarsh Adelaide Property Trust
Hindmarsh Financial Services Ltd
Leveraged Equities Ltd
Adelaide Equity Finance Pty Ltd
Leveraged Equities 2009 Trust
Pirie Street Custodian Ltd
BBS Nominees Pty Ltd
Bendigo Finance Pty Ltd
Bendigo Financial Planning Ltd
Community Developments Australia Pty Ltd
Community Telco Australia Pty Ltd
Community Energy Australia Pty Ltd
Community Solutions Australia Pty Ltd
Homesafe Trust
National Mortgage Market Corporation Pty Ltd
Rural Bank Limited
TDCC Holdings Pty Ltd
TDCC Developments No. 1 Pty Ltd
TDCC Developments No. 2 Pty Ltd
TDCC Developments No. 3 Pty Ltd
TDCC Developments No. 4 Pty Ltd
TDCC Developments No. 5 Pty Ltd
TDCC Developments No. 6 Pty Ltd
TDCC Developments No. 7 Pty Ltd
TDCC Developments No. 8 Pty Ltd
TDCC Developments No. 9 Pty Ltd
TDCC Developments No. 10 Pty Ltd
TDCC Developments No. 11 Pty Ltd
TDCC Developments No. 12 Pty Ltd
TDCC Developments No. 13 Pty Ltd
TDCC Developments No. 14 Pty Ltd
Sandhurst Trustees Ltd
Sandhurst Nominees (Victoria) Pty Ltd
Pirie Street Nominees Pty Ltd
96
Principal Activities
Banking
Securitisation Manager
Security Trustee
Trust Manager
Trustee company
Responsible Entity for listed trusts
Banking
Property Owner
Investment company
Margin Lending
Margin Lending
Securitisation
Provider of share nominee services for margin lending
Administration company
Leasing finance
Financial advisory services
Community initiatives
Telecommunications services
Community initiatives
Community initiatives
Homesafe product financier
Mortgage origination & management
Banking
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Trustee company
Nominee services
Financial services
20. Particulars in relation to controlled entities
(continued)
Chief entity
Securitisation
ABL Portfolio Funding Trust 2007-1
Lighthouse Warehouse Trust No 1
Lighthouse Warehouse Trust No 2
Lighthouse Warehouse Trust No 14
Torrens Series 2005-1 Trust
Torrens Series 2005-3 (E) Trust
Torrens Series 2006-1(E) Trust
Torrens Series 2007-1 Trust
Torrens Series 2008-1 Trust
Torrens Series 2008-3 Trust
Torrens Series 2008-4 Trust
Torrens Series 2009-1 Trust
Torrens Series 2009-3 Trust
Torrens Series 2010-1 Trust
Torrens Series 2010-2 Trust
Torrens Series 2010-3 Trust
Torrens Series 2011-1(E) Trust
Torrens Series 2011-2 Trust
Torrens Series 2012-1 Trust
Torrens Series 2013-1 Trust
Torrens Series 2013-2 Trust
1 Non-operating controlled entities are excluded from the above list.
2 All entities are 100% owned and incorporated in Australia.
Principal Activities
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
97
Annual Financial Report Period ending 30 June 2013 21. Investments accounted for using the
equity method
Name
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Community Telco Australia Pty Ltd 1
Strategic Payments Services Pty Ltd
Linear Financial Holdings Pty Ltd
Homebush Financial Services Ltd
Vic West Community Enterprise Pty Ltd
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
Ownership interest
held by consolidated entity
Balance date
2013
%
50.0
50.0
50.0
100.0
47.5
40.0
49.0
50.0
49.5
49.5
49.5
49.5
2012
%
50.0
50.0
50.0
50.0
47.5
40.0
49.0
-
-
-
-
-
30 June
30 June
30 June
30 June
31 December
30 June
30 June
30 June
30 June
30 June
30 June
30 June
1 Community Telco Australia (wholly owned subsidiary, effective December 2012)
(i) Principal activities of associated companies
Community Sector Enterprises Pty Ltd - financial services
Homesafe Solutions Pty Ltd - trust manager
Silver Body Corporate Financial Services Pty Ltd - financial services
Community Telco Australia Pty Ltd - telecommunication services
Strategic Payments Services Pty Ltd - payment processing services
Linear Financial Holdings Pty Ltd - asset management services
Homebush Financial Services Ltd - financial services
Vic West Community Enterprise Pty Ltd - telecommunications services (acquired December 2012)
Aegis Correctional Partnership Pty Ltd - trustee services (acquired November 2012)
Aegis Securitisation Nominees Pty Ltd - trustee services (acquired November 2012)
Aegis Correctional Partnership Trust - project management and financial services (acquired November 2012)
Aegis Securitisation Trust - financial services (acquired November 2012)
All joint ventures' and associates are incorporated in Australia, and have a balance date of 30 June except Strategic Payments
Services Pty Ltd which has a balance date of 31 December.
98
21. Investments accounted for using the
equity method (continued)
(ii) Share of joint ventures' and associates revenue
and profits
Share of joint ventures' and associates:
Revenue
Expense
Profit before income tax
Income tax expense
Profit after income tax
Share of joint ventures' and associates operating profits after income tax:
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Vicwest Community Enterprise Ltd
Strategic Payments Services Pty Ltd
Linear Financial Holdings Pty Ltd
Homebush Financial Services Ltd
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
The consolidated entity's share in the retained profits and
reserves of joint ventures' and associates are not available for
payment of dividends to shareholders of Bendigo and Adelaide
Bank Limited until such time as those profits and reserves are
distributed by the joint ventures' and associates.
Consolidated
Parent
2013
$m
16.1
14.5
1.6
0.1
1.5
2013
$m
0.2
0.2
0.1
(0.1)
1.5
(0.4)
-
-
-
-
-
2012
$m
16.4
15.7
0.7
0.3
0.4
2012
$m
0.2
0.4
0.2
-
0.3
(0.7)
-
-
-
-
-
2013
$m
13.1
11.2
1.9
0.1
1.8
2013
$m
0.2
0.2
-
(0.1)
1.5
-
-
-
-
-
-
2012
$m
14.7
13.6
1.1
0.2
0.9
2012
$m
0.2
0.4
-
-
0.3
-
-
-
-
-
-
1.5
0.4
1.8
0.9
99
Annual Financial Report Period ending 30 June 2013
21. Investments accounted for using the
equity method (continued)
(iii) Carrying amount of investments in joint ventures'
and associates
Balance at the beginning of financial year
Carrying amount of investment in joint ventures' and associates
Acquired during the year
Dividends received from joint ventures' and associates
Share of joint ventures' and associates net profits for the financial year
Carrying amount of investments in joint ventures' and associates
at the end of the financial year
Represented by:
Investments at equity accounted amount:
Homebush Financial Services Ltd
Community Sector Enterprises Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Vicwest Community Enterprise Ltd
Strategic Payment Services Pty Ltd
Homesafe Solutions Pty Ltd
Linear Financial Holdings Pty Ltd
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
2013
$m
12.9
1.4
(0.2)
1.5
15.6
0.8
0.9
0.4
1.5
10.2
0.4
1.4
-
-
-
-
2012
$m
12.5
0.4
(0.4)
0.4
12.9
0.8
0.8
0.4
-
8.8
0.3
1.8
-
-
-
-
2013
$m
10.7
1.4
(0.1)
1.8
13.8
0.8
0.9
-
1.5
10.2
0.4
-
-
-
-
-
2012
$m
9.5
0.4
(0.4)
0.9
10.4
0.8
0.8
-
-
8.8
0.3
-
-
-
-
-
15.6
12.9
13.8
10.7
There are no impairment losses relating to investments in joint ventures' and associates.
Unrecognised losses relating to joint ventures' and associates
-
1.2
-
1.2
(iv) The consolidated entity's share of the assets
and liabilities of joint ventures' and associates in
aggregate
Assets
Liabilities
Net Assets
16.1
8.7
7.4
13.4
9.8
3.6
13.7
5.9
7.8
11.2
7.4
3.8
100
Subsequent events affecting joint ventures' and associates
profits/losses for the ensuing year (if any) are disclosed in the
Events after balance sheet date Note 49.
The consolidated entity's share of joint ventures' and
associates commitments and contingent liabilities (if any) are
disclosed in the Commitments and Contingencies Note 44.
22. Property, plant and equipment
Consolidated
Parent
(a) Carrying Value
Property
Freehold land - at fair value
Freehold buildings - at fair value
Accumulated depreciation
Leasehold improvements - at cost
Accumulated depreciation
Other
Plant, furniture, fittings, office equipment & vehicles - at cost
Accumulated depreciation
(b) Reconciliations
Freehold land
Carrying amount at beginning of financial year
Transfer to assets held for sale
Freehold buildings
Carrying amount at beginning of financial year
Depreciation expense
Transfer to assets held for sale
Leasehold improvements - at cost
Carrying amount at beginning of financial year
Additions
Additions through acquisition of entities
Disposals
Depreciation expense
Transfer assets from subsidiary to parent
2013
$m
1.0
1.0
1.1
(0.1)
1.0
84.2
(45.8)
38.4
40.4
168.3
(145.3)
23.0
63.4
1.0
-
1.0
1.0
-
-
1.0
39.8
6.0
-
(0.1)
(7.3)
-
38.4
2012
$m
1.0
1.0
1.1
(0.1)
1.0
80.7
(40.9)
39.8
41.8
179.3
(152.1)
27.2
69.0
16.6
(15.6)
1.0
14.9
(0.3)
(13.6)
1.0
39.6
3.8
2.9
-
(6.5)
-
39.8
2013
$m
2012
$m
0.3
0.3
0.2
-
0.2
82.8
(45.3)
37.5
38.0
164.8
(143.3)
21.5
59.5
0.3
-
0.3
0.2
-
-
0.2
36.0
6.0
-
(0.1)
(7.1)
2.7
37.5
0.3
0.3
0.2
-
0.2
72.7
(36.7)
36.0
36.5
172.1
(148.0)
24.1
60.6
0.3
-
0.3
0.2
-
-
0.2
38.4
3.8
-
-
(6.2)
-
36.0
101
Annual Financial Report Period ending 30 June 2013
22. Property, plant and equipment
(continued)
Plant, furniture, fittings, office equipment & vehicles
Carrying amount at beginning of financial year
Additions
Additions through acquisition of entities
Disposals
Depreciation expense
Transfer assets from subsidiary to parent
If land and buildings were measured using the cost model the carrying amounts would
be as follows:
Land
Buildings
Accumulated depreciation and impairment
Net carrying amount
Consolidated
Parent
2013
$m
27.2
7.1
0.1
(0.8)
(10.6)
-
23.0
0.4
0.6
(0.4)
0.6
2012
$m
28.8
8.4
2.2
(0.8)
(11.4)
-
27.2
0.4
0.6
(0.3)
0.7
2013
$m
24.1
6.5
-
(0.7)
(10.2)
1.8
21.5
0.1
0.1
(0.1)
0.1
2012
$m
27.8
7.9
-
(0.8)
(10.8)
-
24.1
0.1
0.1
(0.1)
0.1
102
23. Assets held for sale
Land and buildings
24. Investment property
Carrying amount at beginning of financial year
Additions
Additions through acquisition of entities
Disposals
Net gain/(loss) from fair value adjustments
Consolidated
Parent
2013
$m
25.4
25.4
2012
$m
25.4
25.4
2013
$m
-
-
Consolidated
Parent
2013
$m
298.9
21.0
12.5
(6.6)
23.1
348.9
2012
$m
263.0
36.3
-
-
(0.4)
298.9
2013
$m
-
-
12.5
(6.6)
-
5.9
2012
$m
-
-
2012
$m
-
-
-
-
-
-
Investment properties are carried at fair value, which has been determined
in accordance with directors’ valuations and have not been independently
valued.
Additions acquired through acquisitions are investment properties acquired
through Southern Finance acquisition. Properties are carried at fair value.
Properties are independently valued or contracts are in place for sale.
The major component of the asset represents residential properties acquired
under the Homesafe Equity Release product, and is subject to restricted
trading rights over the life of the agreements with individual customers. The
realisability of the properties and the remittance of income and proceeds of
disposal can be impacted by the real estate market conditions, specifically
Melbourne and Sydney. The fair value represents the amounts at which the
assets could be sold in an arm’s length transaction at the date of valuation
including allowance for the restrictions applicable to these assets, and is
determined by reference to adjusted property market index rates.
103
Annual Financial Report Period ending 30 June 2013
25. Intangible assets and goodwill
Consolidated
Parent
(a) Carrying Value
Intangible assets
Customer list - at cost
Accumulated amortisation
Computer software - at cost
Accumulated amortisation and impairment
2013
$m
12.1
(6.0)
6.1
143.4
(92.5)
50.9
2012
$m
9.1
(4.2)
4.9
135.3
(67.9)
67.4
Trustee licence - at cost
8.4
8.4
Computer Software (Adelaide) - at fair value
Accumulated amortisation
Trade Name - at fair value
Accumulated amortisation
Customer Relationship - at fair value
Accumulated amortisation
Management rights - at fair value
Accumulated amortisation
Core Deposits - at fair value
Accumulated amortisation
104
-
-
-
28.4
(23.6)
4.8
72.0
(39.3)
32.7
15.3
(5.7)
9.6
116.3
(79.0)
37.3
1.3
(1.3)
-
28.4
(20.7)
7.7
72.0
(30.7)
41.3
15.3
(4.7)
10.6
116.3
(68.5)
47.8
2013
$m
2.9
(0.6)
2.3
122.6
(74.5)
48.1
-
-
-
-
25.5
(22.2)
3.3
29.3
(20.0)
9.3
15.3
(5.7)
9.6
98.7
(70.2)
28.5
2012
$m
-
-
-
119.9
(54.6)
65.3
-
1.3
(1.3)
-
25.5
(19.7)
5.8
29.3
(16.4)
12.9
15.3
(4.7)
10.6
98.7
(62.0)
36.7
Goodwill
1,368.4
1,360.1
1,288.9
1,277.1
Total intangible assets and goodwill
1,518.2
1,548.2
1,390.0
1,408.4
25. Intangible assets and goodwill
(continued)
(b) Reconciliations
Intangible assets
Customer list
Carrying amount at beginning of financial year
Acquisition through business combination
Additions/fair value adjustment
Amortisation charge
Computer software
Carrying amount at beginning of financial year
Addition acquired through business combination
Additions
Transfers
Amortisation charge
Trustee licence
Carrying amount at beginning of financial year
Trade Name
Carrying amount at beginning of financial year
Amortisation Charge
Customer Relationship
Carrying amount at beginning of financial year
Amortisation Charge
Management Rights
Carrying amount at beginning of financial year
Amortisation Charge
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
4.9
3.0
-
(1.8)
6.1
67.4
0.7
1.8
-
(19.0)
50.9
8.4
8.4
7.7
(2.9)
4.8
41.3
(8.6)
32.7
10.6
(1.0)
9.6
-
-
5.5
(0.6)
4.9
65.6
0.8
17.2
-
(16.2)
67.4
8.4
8.4
12.4
(4.7)
7.7
49.9
(8.6)
41.3
11.7
(1.1)
10.6
-
3.0
-
(0.7)
2.3
65.3
-
1.0
(1.1)
(17.1)
48.1
-
-
5.8
(2.5)
3.3
12.9
(3.6)
9.3
10.6
(1.0)
9.6
-
-
-
-
-
64.2
-
16.3
-
(15.2)
65.3
-
-
10.1
(4.3)
5.8
16.5
(3.6)
12.9
11.7
(1.1)
10.6
105
Annual Financial Report Period ending 30 June 2013
25. Intangible assets and goodwill
(continued)
Core Deposits
Carrying amount at beginning of financial year
Amortisation Charge
Goodwill
Consolidated
Parent
2013
$m
47.8
(10.5)
37.3
2012
$m
60.6
(12.8)
47.8
2013
$m
36.7
(8.2)
28.5
2012
$m
47.1
(10.4)
36.7
Carrying amount at beginning of financial year
1,360.1
1,446.1
1,277.1
1,369.5
Addition acquired through business combination/(purchase price adjustment)
Transfer from subsidiary
Impairment of goodwill
14.5
-
(6.2)
1,368.4
9.1
-
(95.1)
1,360.1
2.7
9.1
-
1,288.9
-
2.7
(95.1)
1,277.1
Total intangible assets and goodwill
1,518.2
1,548.2
1,390.0
1,408.4
Intangible assets
Finite useful life
The customer lists are acquired through a business
combination and have been capitalised at fair value. The
customer lists have been assessed as having a finite life and
are amortised using a method that reflects the pattern of the
economic benefits of the asset over a period of five years.
Indefinite useful life
The trustee licence represents an intangible asset purchased
through the effect of a business combination (Sandhurst
Trustees Limited). The useful life of this asset has been
estimated as indefinite and the cost method is utilised for
measurement.
Computer software includes internally developed software and
software that is not an integral part of the related hardware.
Intangible software is capitalised at cost and is amortised
over the assessed useful life of the asset on a straight line
basis. This is generally a period of between 2.5 years and
seven years (major software items).
The carrying value of internally developed software is tested
annually for impairment, using estimates of future cash flows
over the assets remaining useful life.
Other intangible assets acquired through the business
combinations with Adelaide Bank Limited and Rural Bank
Limited, include trade name, customer relationship,
management rights and core deposits. These assets have
been capitalised at fair value and are amortised to reflect the
period and pattern of economic benefit. Impairment testing
is completed annually on these assets, and if impairment
indicators are met, the assets are written down to recoverable
amounts.
The asset is assessed as having an indefinite life as the
authorisation for Sandhurst Trustees Limited to trade as
a trustee company has no end period. Revocation of the
authority is unlikely and would occur only in the event of
non-compliance with conditions under which authorisation is
granted. Sandhurst Trustees Limited has specific compliance
procedures in place to ensure these conditions are met.
Goodwill
The goodwill items represent intangible assets purchased
through the effect of business combinations.
For intangible assets that have definite life, impairment testing
is only required at each reporting date where there is an
indication of an impairment. For intangible assets that have
indefinite life, impairment testing is required at least annually.
106
26. Impairment testing of goodwill and
intangibles with indefinite lives
Goodwill acquired through business combinations is initially
measured at its cost, being the excess of the cost of the
business combination over Bendigo and Adelaide Bank Limited
interest in the net fair value of all subsidiaries’ identifiable
assets, liabilities and contingent liabilities. Goodwill is not
amortised, but is tested for impairment annually or more
frequently if impairment indicators exist.
For the year ended 30 June 2013 an impairment loss of $6.2
million was recorded as at 30 June 2013 against the goodwill
generated through the Community Telco® Australia acquisition.
Allocation of goodwill and intangible assets
Goodwill and intangible assets do not generate cash flows
independently of other assets or groups of assets, and often
contributes to the cash flows of multiple cash-generating
units. Therefore the accounting standard allows companies to
aggregate cash-generating units (CGU) and test goodwill for
impairment at relatively higher levels than is the case of other
assets.
Amortisation and Impairment Charge – Intangible
Assets with Finite Lives
All the intangible assets other than goodwill and trustee
licence have been assessed as having finite lives in the
ranges as follows:
Category
Core deposit
Trade name
Customer relationship
Management rights
Software
Customer lists
Useful Life
2 - 10 years
5 - 15 years
7 - 12 years
15 years
3 - 7 years
5 years
Impairment Review Methodologies – Goodwill and
Intangible Assets with Indefinite Lives
Impairment testing for goodwill and intangible assets is
performed by comparing the carrying amount of the CGU
grouping to which the goodwill and intangible assets have
been allocated with its recoverable amount. The recoverable
amount is measured as the higher of value in use and fair
value less costs to sell.
(i) Fair Value Method
In the goodwill impairment review model, fair value less costs
to sell is calculated by multiplying the CGU’s projected after tax
cash flows for 2013/2014 (adjusted for specific items) by 12.
In order to determine the appropriate multiple, consideration
is given to recent similar transactions that may have occurred.
A review is performed over earnings multiples across similar
sectors over the last five years as well as current market
conditions. Management consider that an earnings multiple of 12
is appropriate for each for each of the Groups identified CGU’s.
(ii) Value in Use Method
Value in use recoverable amount calculation is based on five
years’ forecasted after tax cash flows for the CGU, discounted
back to the present value using an appropriate discount rate,
plus a terminal value.
The discount rate applied to the cash flows projection is 10.07
percent (2012: 9.37%). Management believe this discount rate
is appropriate based on current market risk free rate, company
specific beta and market risk premium.
Terminal value for value in use method is calculated by
discounting the fifth year’s earning by the discount factor
(i.e. 10.07 percent minus long term growth rate i.e. 3 percent).
Long term growth rates of 3 percent have been used.
The five years’ forecasted after tax cash flows of each CGU is
based on management’s expectation of group strategy and
future trends in the industry.
The below table represents the growth assumptions adopted
for CGU's using the value in use methodology for the 2013/14
year and is based on the budget approved by the Board:
CGU
Wealth
Rural Bank
2014/
15
2015/
16
2016/
17
2017/
18
4.0%
6.0%
4.0%
6.0%
6.0%
6.0%
6.0%
6.0%
Long
term
growth
rate
3.0%
3.0%
The 2013/14 forecasted after tax cash flows are based on the
financial forecast approved by the Board.
For impairment review purposes, no impairment loss is
required to be made if the CGU’s recoverable amount is above
the CGU’s net asset carrying amount under either of the fair
value and value in use tests. Based on the fair value or value
in use tests results, no further impairment loss is required to
be made for any of the CGU’s as at 30 June 2013.
For the purpose of impairment testing, goodwill and intangible
assets acquired in a business combination shall, from the
acquisition date, be allocated to each of the acquirer’s cash-
generating units, or groups of cash-generating units, that are
expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the
acquiree are assigned to those units or groups of units.
For goodwill allocation, the cash generating units identified
represent the core business operations of the Group as
follows:
Retail
The provision of retail banking products and services delivered
through the company-owned branch network and the Group’s
share of net interest and fee income from the Community
Bank® branch network and includes Delphi Bank.
Third Party
The provision of loans, distributed through mortgage brokers,
mortgage managers, mortgage originators and alliance partners.
107
Annual Financial Report Period ending 30 June 2013 26. Impairment testing of goodwill and
intangibles with indefinite lives (continued)
Wealth
The provision of financial planning services, margin lending
activities and wealth deposits. Commissions are received as
the responsible entity for managed investment schemes and
for corporate trusteeships and other trustee and custodial
services.
Rural Bank
The provision of banking services to agribusiness, rural and
regional Australian communities.
The carrying amount of goodwill and intangibles allocated to
each cash-generating unit is as follows:
CGU
Goodwill test
applied
Carrying amount
of goodwill
Carrying amount
of intangibles
Sensitivity before impairment becomes
evident for the test applied
$m
$m
Fair value
Value in use
Earnings multiple
Annual profit growth
Discount rate
Retail
Third Party
Fair value
Fair value
Wealth
Value in use
Rural Bank
Value in use
677.5
464.4
209.7
16.8
61.0
23.0
36.2
29.6
Lower by 1
Lower by 10.6%
Lower by 1
Lower by 10.4%
Not applicable 1
Lower by 2.2%
Not applicable 1
Lower by 6.4%
Total
1,368.4
149.8
1 The value in use test has been applied to the Wealth and Rural Bank CGU.
13.2%
13.1%
10.6%
11.8%
2012
$m
18.5
17.4
645.1
156.4
-
Consolidated
Parent
2013
$m
22.3
24.0
376.7
186.3
6.1
615.4
2012
$m
20.7
22.4
263.3
203.3
-
2013
$m
15.6
18.7
1,049.5
146.1
-
509.7
1,229.9
837.4
27. Other assets
Accrued income
Prepayments
Sundry debtors
Accrued interest
Other
108
Other assets are generally non-interest bearing and are short-
term by nature.
Sundry debtors are normally settled within 30 days.
Accrued interest is interest accrued on loans and receivables
and is generally charged to the loan or receivable on the first
day of the next month.
28. Deposits
Deposits
Retail
Bendigo Adelaide - company owned
Bendigo Adelaide - community bank/alliances
Rural Bank
Treasury sourced
Wholesale
Domestic
Offshore
Deposits by geographic location
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
21,067.4
21,399.3
21,265.2
20,300.3
12,787.0
11,617.8
12,787.0
11,617.8
2,079.5
6,311.9
2,143.6
5,502.4
-
-
5,098.2
4,519.4
42,245.8
40,663.1
39,150.4
36,437.5
4,929.6
3,832.5
4,707.7
3,664.8
263.6
77.1
263.6
77.1
5,193.2
3,909.6
4,971.3
3,741.9
47,439.0
44,572.7
44,121.7
40,179.4
21,061.8
21,180.3
20,416.1
18,748.8
10,285.3
8,063.8
9,236.8
7,573.7
968.5
4,908.2
5,697.2
2,981.9
907.5
628.6
773.0
4,959.2
5,268.2
2,918.2
933.6
476.4
938.4
4,527.8
4,869.7
2,670.9
840.7
621.3
836.3
4,537.8
4,716.0
2,457.0
818.8
491.0
47,439.0
44,572.7
44,121.7
40,179.4
Notes Payable
6,400.6
6,411.0
350.3
-
109
Annual Financial Report Period ending 30 June 2013
29. Other payables
Sundry creditors
Accrued expenses and outstanding claims
Accrued interest
Prepaid interest
Payables are non-interest bearing and are generally settled
within 30 days.
Accrued interest is credited to customer accounts in
accordance with the terms of the investment products held by
the customer, but generally within a twelve month period.
30. Provisions
(a) Balances
Employee benefits (Note 36)
Employee shares shortfall 1
Rewards program 2
Property Rent 3
Dividends 4
Uninsured Losses 5
Consolidated
Parent
2013
$m
54.5
291.7
311.5
31.0
688.7
2012
$m
36.2
266.7
387.2
41.7
731.8
2013
$m
187.3
410.2
290.4
-
2012
$m
157.9
668.1
342.0
-
887.9
1,168.0
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
83.1
66.9
79.9
62.0
0.7
4.8
1.1
0.9
2.9
4.2
4.2
1.5
1.0
2.9
0.7
4.8
1.1
0.9
2.9
4.2
4.2
1.5
1.0
2.9
93.5
80.7
90.3
75.8
1 The provision for employee shares shortfall is in relation to possible losses associated with employee loans under the Employee share plan.
This provision will only be utilised if:
(a) employees instruct the administrator of the plan to sell their shares in settlement of the employee loan relating to those shares: and,
(b) at the time of the sale the market price of Bendigo and Adelaide Bank Limited shares is below the outstanding value of those shares in the loan account.
2 The provision for rewards program is to recognise the liability to customers in relation to points earned by them under the Bendigo and Adelaide Bank Rewards
Program and is measured on the basis of full value of points outstanding at balance date. As reward points "expire" after three years, the balance will be utilised, or
forfeited within a three year period.
3 The provision for property rent is to recognise the difference between actual property rent paid and the property rent expense recognised in the income statement.
The value recognised in the income statement is in accordance with Accounting Standard AASB 117 "Leases" whereby the lease expense is to be recognised on a
straight-line basis over the period of the lease. The provision is expected to be utilised over the period of the respective leases, typically a period between three and
ten years. However, it is expected that a balance will continue as old leases expire and are replaced by new leases.
4 The provision for dividends represents the residual carried forward balance in relation to ordinary shareholders that participate in the dividend reinvestment plan. It
is expected that the current balance will be utilised within a 12 month period. However, an ongoing balance will continue unless all outstanding balances are paid to
shareholders upon ceasing participation in the dividend reinvestment plan. The provision also includes accrued dividends relating to preference shares.
110
5 The provision for uninsured losses represents the expected loss in relation to fraud not covered under insurance contracts.
30. Provisions (continued)
(b) Movements
Employee benefits
Opening balance
Provision acquired in business combination
Additional provisions recognised
Decrease due to change in discount rate
Amounts utilised during the year
Closing balance
Employee shares shortfall
Opening balance
Release of provision
Amounts utilised during the year
Closing balance
Rewards program
Opening balance
Additional provisions recognised
Amounts utilised during the year
Closing balance
Property Rent
Opening balance
Amounts utilised during the year
Closing balance
Dividends
Opening balance
Additional dividends provided
Dividends paid during the year
Closing balance
Uninsured Losses
Opening balance
Additional provisions recognised
Amounts utilised during the year
Closing balance
Consolidated
Parent
2013
$m
66.9
0.5
46.5
0.8
(31.6)
83.1
4.2
(3.4)
(0.1)
0.7
4.2
2.4
(1.8)
4.8
1.5
(0.4)
1.1
1.0
242.7
(242.8)
0.9
2.9
0.2
(0.2)
2.9
2012
$m
71.3
1.6
34.0
(0.3)
(39.7)
66.9
3.2
1.2
(0.2)
4.2
3.9
1.6
(1.3)
4.2
1.8
(0.3)
1.5
1.2
229.1
(229.3)
1.0
3.1
0.6
(0.8)
2.9
2013
$m
62.0
-
46.2
0.8
(29.1)
79.9
4.2
(3.4)
(0.1)
0.7
4.2
2.4
(1.8)
4.8
1.5
(0.4)
1.1
1.0
242.7
(242.8)
0.9
2.9
0.2
(0.2)
2.9
2012
$m
69.5
-
30.2
(0.3)
(37.4)
62.0
3.2
1.2
(0.2)
4.2
3.9
1.6
(1.3)
4.2
1.8
(0.3)
1.5
1.2
229.1
(229.3)
1.0
2.9
0.4
(0.4)
2.9
111
Annual Financial Report Period ending 30 June 2013
31. Reset Preference Shares
Reset preference shares - Nil fully paid $100 preference shares
Reset preference shares are perpetual, but can be exchanged
at the request of the holder or the Company. Dividends are
non-cumulative and are payable six-monthly in arrears at the
discretion of the directors, based on a dividend rate of the five
year mid swap reference rate plus the initial margin multiplied
by one less the corporate tax rate.
In November 2012 the Bank redeemed all reset preference shares.
32. Convertible preference shares
Convertible preference shares - 2,688,703 fully paid $100 preference shares
In November 2012, the bank issued 2.7 million convertible
preference shares. The preference shares may be redeemed
at the discretion of Bendigo and Adelaide Bank for a price per
preference share on 13 December 2017. Any preference shares
not already converted will be converted on 13 December 2019
into ordinary shares.
33. Subordinated debt
Subordinated capital notes
Maturity analysis
Not longer than 3 months
112
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Consolidated
Parent
2013
$m
-
-
2012
$m
89.5
89.5
2013
$m
-
-
2012
$m
89.5
89.5
Consolidated
Parent
2013
$m
268.9
268.9
2012
$m
-
-
2013
$m
268.9
268.9
2012
$m
-
-
The preference shares carry a dividend which will be
determined semi-annually, payable half yearly in arrears on 13
June and 13 December. If the Bank is unable to pay a dividend
because of insufficient profits, the dividend is non-cumulative.
The convertible shares rank ahead of the ordinary shares in the
event of liquidation, they are perpetual and do not have a fixed
maturity date.
The dividend rate will be the floating Bank Bill Rate plus the
initial fixed margin, adjusted for franking credits.
Consolidated
Parent
2013
$m
354.3
-
-
72.5
281.8
354.3
2012
$m
436.9
38.5
43.8
72.7
281.9
436.9
2013
$m
302.2
-
-
30.4
271.8
302.2
2012
$m
361.1
38.5
20.2
30.5
271.9
361.1
34. Issued capital
Issued and paid up capital
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
Ordinary shares fully paid - 412,007,864 (2012: 402,233,266 )
3,758.0
3,681.8
3,758.0
3,681.8
Preference shares of $100 face value fully paid - 900,000 (2012: 900,000
fully paid)
Step-up preference shares of $100 face value fully paid - 1,000,000 (2012:
1,000,000)
Employee share ownership plan shares
Effective 1 July 1998, the corporations legislation in place
abolished the concepts of authorised capital and par value
shares. Accordingly, the parent does not have authorised
capital nor par value in respect of its issued shares. Fully paid
ordinary shares carry one vote per share and carry the right to
dividends.
Preference share (BPS) dividends are non-cumulative and are
payable quarterly in arrears, at the discretion of the directors,
based on a dividend rate equal to the sum of the 90 day bank
bill rate plus the initial margin multiplied by one minus the
company tax rate. It is expected that dividends paid will be
fully franked. The BPS are perpetual, but may be redeemed by
Bendigo and Adelaide Bank subject to prior approval of APRA.
88.5
88.5
88.5
88.5
100.0
100.0
100.0
100.0
(18.7)
3,927.8
(21.3)
3,849.0
(18.7)
3,927.8
(21.3)
3,849.0
Step up Preference share (SPS) dividends are non-cumulative and
are payable quarterly in arrears, at the discretion of the directors,
based on a dividend rate equal to the sum of the 90 day bank bill
rate plus the initial margin multiplied by one minus the company
tax rate. It is expected that dividends paid will be fully franked.
The SPS are perpetual, but may be redeemed by Bendigo and
Adelaide Bank subject to prior approval of APRA.
Employee share ownership plan shares is the value of loans
outstanding in relation to shares issued to employees under
this plan and effectively represents the unpaid portion of the
issued shares.
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
Movements in ordinary shares on issue
Opening balance 1 July - 402,233,266 (2012: 367,104,585 )
3,681.8
3,408.9
3,681.8
3,408.9
Shares issued under:
Bonus share scheme - 402,549 @ $7.39; 403,561 @ $9.92
(2012: 338,041 @ $8.06; 529,211 @ $7.36)
Dividend reinvestment plan - 4,957,637 @ $7.39; 4,010,851 @ $9.92
(2012: 5,005,825 @ $8.06; 5,303,252 @ $7.36)
Institutional placement and entitlement offer - Nil (2012: 17,751,480 @ $8.45)
Retail entitlement offer - Nil (2012: 6,200,872 @ $7.33)
Share issue costs
-
-
-
-
76.4
-
-
(0.2)
79.3
150.0
45.5
(1.9)
76.4
-
-
(0.2)
79.3
150.0
45.5
(1.9)
Closing balance 30 June - 412,007,864 (2012: 402,233,266)
3,758.0
3,681.8
3,758.0
3,681.8
Movements in preference shares on issue
Opening balance 1 July - 900,000 fully paid (2012: 900,000 fully paid)
Closing balance 30 June - 900,000 fully paid to $100
(2012: 900,000 fully paid)
88.5
88.5
88.5
88.5
88.5
88.5
88.5
88.5
113
Annual Financial Report Period ending 30 June 2013
34. Issued capital (continued)
Movements in step up preference shares on issue
Opening balance 1 July - 1,000,000 (2012: 1,000,000)
Closing balance 30 June - 1,000,000 fully paid to $100 (2012: 1,000,000)
Movements in Employee share ownership plan shares
Opening balance 1 July
Reduction in Employee share ownership plan shares
Closing balance 30 June
Consolidated
Parent
2013
$m
100.0
100.0
(21.3)
2.6
(18.7)
2012
$m
100.0
100.0
(24.6)
3.3
(21.3)
2013
$m
100.0
100.0
(21.3)
2.6
(18.7)
2012
$m
100.0
100.0
(24.6)
3.3
(21.3)
Total other issued and paid up capital
169.8
167.2
169.8
167.2
Total issued and paid up capital
3,927.8
3,849.0
3,927.8
3,849.0
114
35. Retained earnings and reserves
Retained earnings
Movements
Opening balance 1 July
Profit for the year
Movements in general reserve for credit losses
Dividends
Defined benefits actuarial adjustment
Tax effect of defined benefits actuarial adjustment
Transfer of business - Delphi Bank
Balance 30 June
Other reserves
(a) Balances
Employee benefits reserve
Asset revaluation reserve - property
Asset revaluation reserve - available for sale equity investments
Asset revaluation reserve - available for sale debt securities
Cash flow hedge reserve
General reserve for credit losses
Acquisitions Reserve
(b) Nature, purpose and movements
Employee benefits reserve
(a) Nature and purpose
The employee benefits reserve is used to record the assessed cost of shares
issued to non-executive employees under the Employee Share Plan and
the assessed cost of options granted to executive employees under the
Executive Incentive Plan.
(b) Movements
Opening balance
Net increase/(decrease) in reserve
Asset revaluation reserve - property
(a) Nature and purpose
The asset revaluation reserve is used to record increments and decrements
in the value of non-current assets.
(b) Movements
Opening balance
Tax adjustment relating to prior years
Consolidated
Parent
2013
$m
296.5
352.3
(9.8)
(242.5)
2.3
(0.7)
-
398.1
18.5
3.5
1.7
1.1
(34.6)
138.3
(20.4)
108.1
2012
$m
349.5
195.0
(17.6)
(229.0)
(1.8)
0.4
-
296.5
20.2
3.4
28.7
(1.8)
(86.4)
128.5
(20.4)
72.2
2013
$m
87.1
355.2
(14.7)
2012
$m
224.6
105.5
(12.6)
(242.5)
(229.0)
2.3
(0.7)
(0.6)
186.1
18.5
0.2
0.5
1.2
(17.2)
119.7
-
122.9
(1.8)
0.4
-
87.1
20.2
0.1
1.8
(1.7)
(54.7)
105.0
-
70.7
20.2
(1.7)
18.5
18.7
1.5
20.2
20.2
(1.7)
18.5
18.0
2.2
20.2
3.4
0.1
3.5
3.4
-
3.4
0.1
0.1
0.2
0.1
-
0.1
115
Annual Financial Report Period ending 30 June 2013
35. Retained earnings and reserves
(continued)
Asset revaluation reserve - available for sale equity investments
(a) Nature and purpose
The asset revaluation reserve is used to record increments and decrements
in the value of non-current assets. The reserve can only be used to pay
dividends in limited circumstances.
(b) Movements
Opening balance
Transfer asset revaluation reserve to retained earnings (sold assets)
Tax effect of asset revaluation reserve to profit (sold assets)
Net revaluation increments/(decrements)
Tax effect of net revaluation increments
Tax adjustments relating to prior years
Asset revaluation reserve - available for sale debt securities
(a) Nature and purpose
The net unrealised gains reserve is used to record unrealised gains and
losses on investments in the available for sale portfolio.
(b) Movements
Opening balance
Net unrealised gains/(losses)
Cash flow hedge reserve
(a) Nature and purpose
The cash flow hedge reserve records the portion of the gain or loss on
a hedging instrument in a cash flow hedge that is determined to be an
effective hedge.
(b) Movements
Opening balance
Changes due to mark to market
Tax effect of changes due to mark to market
Changes due to transfer to the income statement
Tax effect of changes due to transfer to the income statement
116
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
28.7
(37.1)
10.6
1.1
(0.3)
(1.3)
1.7
34.5
-
-
(9.6)
3.0
0.8
28.7
(1.8)
2.9
1.1
-
(1.8)
(1.8)
1.8
-
-
-
-
(1.3)
0.5
(1.7)
2.9
1.2
1.0
-
-
(0.1)
0.1
0.8
1.8
0.1
(1.8)
(1.7)
(86.4)
75.8
(22.7)
(1.8)
0.5
(34.6)
(109.3)
47.0
(15.0)
(13.0)
3.9
(86.4)
(54.7)
60.2
(18.1)
(6.6)
2.0
(17.2)
(68.0)
34.2
(11.2)
(13.9)
4.2
(54.7)
35. Retained earnings and reserves
(continued)
General reserve for credit losses
(a) Nature and purpose
The general reserve for credit losses records the value of a reserve maintained
to recognised credit losses inherent in the Group's lending portfolio, but not
yet identified. The bank is required to maintain general provisions (includes
general reserve for credit losses and collective provision) by APRA at a
minimum level of 0.50 percent (net of tax) of risk-weighted assets.
(b) Movements
Opening balance
Establishment of GRCL on acquisition
Establishment of GRCL on transfer of business
Increase/(decrease) in general reserve for credit losses
Acquisitions Reserve
(a) Nature and purpose
The acquisition reserve is used to record the difference between the carrying
value of non-controlling interest and the consideration paid to acquire the
remaining interest of the non-controlling interest.
The reserve is attributable to the equity of the parent.
(b) Movements
Opening balance
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
128.5
-
-
9.8
138.3
110.9
4.8
-
12.8
128.5
105.0
92.4
-
4.9
9.8
119.7
-
-
12.6
105.0
(20.4)
(20.4)
(20.4)
(20.4)
-
-
-
-
Total reserves
108.1
72.2
122.9
70.7
36. Employee benefits
Employee benefits liability
Provision for annual leave
Provision for other employee payments
Provision for long service leave
Provision for sick leave bonus
Aggregate employee benefits liability
It is anticipated that annual leave provided at balance date will
be paid in the ensuing 12 month period.
Other employee payments include short-term incentives are
expected to be paid in September 2013.
Long service leave is taken with agreement between employee
and employer, or on termination of employment.
Sick leave bonus is paid to entitled employees on termination
of employment.
23.5
9.1
44.8
5.7
83.1
21.0
0.6
40.1
5.2
66.9
21.7
9.1
43.4
5.7
79.9
18.9
-
37.9
5.2
62.0
117
Annual Financial Report Period ending 30 June 2013
The Participants are entitled to vote and to receive any
dividend, bonus issue, return of capital or other distribution
made in respect of shares they are allocated on vesting
and exercise of their performance shares. The grants to the
Managing Director are subject to a dealing restriction. The
Managing Director is not entitled to sell, transfer or otherwise
deal with any shares allocated to them until two years after
the end of the performance period. There is no dealing
restriction on the current grant of performance shares to other
senior executives.
The current grants under the Plan to Participants were
made in December 2009 (Managing Director’s grant), and
in December 2010, September 2011 and August 2012. The
grants were made in accordance with the terms disclosed
in the remuneration report and were valued and expensed
in accordance with applicable accounting requirements. The
expense recognised in the income statement. The following
table illustrates the number (No.) and weighted average
exercise prices (WAEP) of and movements in performance
shares issued during the year.
The outstanding balance as at 30 June 2013 is represented
by 591,357 performance shares over ordinary shares with an
exercise price of nil, each exercisable upon meeting the above
conditions, and until 2016. The weighted average fair value
of performance shares granted during the year was $3.30
(2012: $7.50).
The fair value of the performance shares granted under
the Plan takes into account the terms and conditions upon
which the performance shares were granted. The fair value
is estimated as at the date of grant using the Black-Scholes-
Merton Option Pricing Model incorporating a Monte Carlo
simulation option pricing model to estimate the probability of
achieving the TSR hurdle and the number of shares vesting.
The first table on page 119 lists the inputs to the model used
for the 2012 and 2013 financial years.
37. Share based payment plans
Salary Sacrifice, Deferred Share and Performance
Share Plan (Current)
The Company has established an Employee Salary Sacrifice,
Deferred Share and Performance Share Plan (the Plan)
that is used as the vehicle for senior executive (including
the Managing Director) long term incentive arrangements.
The Plan provides for grants of performance shares to
the Managing Director, other senior executives and senior
management (the Participants) and includes rules to allow
the Board to set performance conditions and to determine
when those performance conditions have been met and the
Performance Shares vest.
In addition, the plan is used to provide grants of deferred
shares to Participants as deferred base remuneration that
is subject to a service based condition and risk adjustment.
The Plan is also used to provide grants of deferred shares in
connection with the Short Term Incentive (STI) equity deferral
component of senior executive and senior management
remuneration arrangements.
Performance shares
Under the Plan, the Participants have been granted
performance shares subject to performance conditions set by
the Board. If the performance conditions are satisfied during
the relevant performance period, the performance shares will
vest. The performance conditions and performance periods for
grants under the Plan are set out in the 2013 Remuneration
Report. Each performance share represents an entitlement
to one fully-paid ordinary share in the company. Accordingly,
the maximum number of shares that may be acquired by the
Participants is equal to the number of performance shares
granted.
Performance shares are granted at no cost to Participants.
The Plan rules provide that the Board may determine that a
price is payable upon exercise of an exercisable performance
share. The Board has determined that no exercise price will
apply to exercisable performance shares.
The number of performance shares granted to Participants
is based on the fair value of each performance share. The
assessed fair value of current performance shares granted under
the Plan are set out in the 2013 remuneration report at Table 4.
118
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Vested / Exercised during the year
Expired during the year
Outstanding at the end of the year
2013
No.
587,330
202,739
-
(198,712)
-
591,357
2013
WAEP
$0.00
$0.00
-
$0.00
$0.00
$0.00
2012
No.
877,560
110,201
-
(210,864)
(189,567)
587,330
2012
WAEP
$0.00
$0.00
-
$0.00
$0.00
$0.00
37. Share based payment plans (continued)
Dividend yield (%)
Expected volatility (%)
2013 Grant
2012 Grant
6.5%
25%
6.0%
27.5%
Risk-free interest rate (%)
2.49% 3.79% to 4.27%
Expected life of performance shares
(years)
Exercise price ($)
4
Nil
3
Nil
Fair value share price at grant date ($)
$7.58
$8.82
The expected life of the performance shares is based on
historical data and is not necessarily indicative of exercise
patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future
trends, which may also not necessarily be the actual outcome.
No other features of shares granted were incorporated into the
measurement of fair value.
Deferred shares
Under the Plan, the Participants have been granted deferred
shares as deferred base remuneration and in relation to the STI
equity deferral components of remuneration. Deferred shares
are fully-paid ordinary shares in the Company. Accordingly,
the maximum number of shares that may be acquired by the
Participants is equal to the number of deferred shares granted.
Deferred shares issued in relation to deferred base remuneration
are subject to a service condition and risk adjustment as decided
by the Board. The deferred shares issued in relation to the STI
equity deferral are subject to a dealing restriction and continued
service condition set by the Board. Deferred shares are issued
at no cost to the recipient and have no exercise price. If the
service condition is satisfied the deferred shares will vest subject
to any financial and risk adjustment decided by the Board. The
service condition for grants under the Plan is set out in the 2013
Remuneration Report.
The number of deferred shares granted to Participants is
calculated using a volume weighted average closing price
of the company’s shares. The assessed fair value of each
performance share granted under the Plan is set out in the
tables presented in the 2013 Remuneration Report.
The Participants are entitled to vote and to receive any
dividend, bonus issue, return of capital or other distribution
made in respect of shares they are allocated on vesting of
their deferred shares.
The first grant was made under the Plan in March 2012 that
related to STI equity deferral for the 2011 financial year and a
subsequent grant was made in September 2012 as deferred
base remuneration. The grants were made in accordance
with the terms disclosed in the remuneration report and were
valued and expensed in accordance with applicable accounting
requirements. The expense recognised in the income
statement in relation to share-based payments is disclosed
in the Income Statement. The following table illustrates the
number (No.) and weighted average exercise prices (WAEP) of
and movements in deferred shares issued during the year.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Vested / Exercised during the year
Expired during the year
Outstanding at the end of the year
2013
No.
74,466
94,521
(2,781)
(71,685)
-
94,521
2013
WAEP
$0.00
$0.00
-
$0.00
$0.00
$0.00
2012
No.
-
74,466
-
-
-
74,466
2012
WAEP
$0.00
$0.00
-
$0.00
$0.00
$0.00
The outstanding balance as at 30 June 2013 is represented
by 94,521 deferred shares with an exercise price of nil, each
exercisable upon the Participant meeting the above conditions,
and until 30 June 2014. The weighted average fair value of
deferred shares granted during the year was $7.30 (2012:
$7.73). The fair value of the deferred shares granted under the
Plan takes into account the terms and conditions upon which the
deferred shares were granted. The fair value is estimated as at
the date of grant using the volume weighted average closing price
of the company’s shares traded on the ASX for the five trading
days prior to the grant date.
119
Annual Financial Report Period ending 30 June 2013 37. Share based payment plans (continued)
Employee Share Plan (Current)
The Bank established a loan-based limited recourse Employee
Share Plan (Plan) in 2006. The Plan is substantially the same
as the legacy plan (employee share ownership plan) that was
in place from 1995 to 2006. However, the new Plan is only
available to general staff. Executives (including the Managing
Director) may not participate in it.
Under the terms of the Plan, shares are issued at the
prevailing market value. The shares must be paid for by
the staff member. The Plan provides staff members with
an interest-free loan for the sole purpose of acquiring Plan
shares. Net cash dividends after personal income tax
obligations are applied to reduce the loan balance and staff
cannot deal in the shares until the loan has been repaid.
The primary benefit under the terms of the Plan is the financial
benefit of the limited recourse interest-free loan.
The first issue to general staff under this plan was completed
in September 2006. A grant to Community Bank® employees
was made in December 2007. There have been no further
issues under this Plan. Share issues under the Plan are valued
and expensed in accordance with applicable accounting
requirements. The expense recognised in the income
statement in relation to share-based payments is disclosed
on the following page. The following table illustrates the
number (No.) and weighted average exercise prices (WAEP) of
and movements in Plan shares (including the employee share
ownership plan) during the year.
The outstanding balance as at 30 June 2013 is represented
by 3,313,037 ordinary shares with a market value at 30 June
2013 of $10.07 each (value: $33,362,283), exercisable upon
repayment of the employee loans.
The acquisition price of shares granted during the year was nil
as no new shares have been issued since December 2007.
The acquisition price for shares issued under the Plan is
calculated using the volume weighted average share price of
the company’s shares traded on the ASX in the 7 days trading
ending one calendar week before the invitation date.
The fair value of the shares granted under the Plan is
estimated as at the date of each grant using the Black-
Scholes-Merton Option Pricing Model taking into account the
terms and conditions upon which the shares were granted.
The fair value is determined by independent valuation. The
expected life of the share options is based on historical data
and is not necessarily indicative of exercise patterns that may
occur. The expected volatility reflects the assumption that the
historical volatility is indicative of future trends, which may
also not necessarily be the actual outcome. No other features
of shares granted were incorporated into the measurement of
fair value. The exercise price of the shares issued will reduce
over time as dividends are applied to repay the staff loans.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2013
No.
3,683,212
-
-
(370,175)
-
3,313,037
3,313,037
2013
WAEP
$5.78
-
-
$6.90
-
$5.65
$5.65
2012
No.
4,187,187
-
-
(503,975)
-
3,683,212
3,683,212
2012
WAEP
$5.87
-
-
$6.53
-
$5.78
$5.78
120
37. Share based payment plans (continued)
Recognised share-based payment expenses
Expense arising from equity settled share-based payment transactions
Total expense arising from share-based payment transactions
Employee share and loan values and EPS impact 1
Employee Share and Loan Values
Value of unlisted employee shares on issue at 30 June 2013 -
3,313,037 shares @ $10.07 (2012 - 3,683,212 shares @ $7.41)
Consolidated
2013
$m
2012
$m
0.2
0.2
2.2
2.2
33.4
27.3
Value of outstanding employee loans at beginning of year relating to employee shares
21.3
24.6
Value of repayments of loans during year
(2.6)
(3.3)
Value of outstanding employee loans at end of year relating to employee shares
18.7
21.3
Number of employees with outstanding loan balances
2,075
2,217
Indicative cost of funding employee loans
Average balance of loans outstanding
Average cost of funds
After tax indicative cost of funding employee loans
Earnings per ordinary share - actual
Earnings per ordinary share - adjusted for interest foregone
19.8
3.99%
0.6
84.9
85.0
22.6
5.06%
0.8
48.6
48.8
cents
cents
1 The EPS analysis relates to shares issued under the Company’s current and legacy employee share plans.
The cost of employee interest-free loans is calculated by
applying the Company’s average cost of funds for the financial
year to the average outstanding balance of employee loans
for the financial year. This cost is then tax-effected at the
Company tax rate of 30 percent (2012: 30%).
Earnings per ordinary share - adjusted is calculated by adding
the after tax indicative cost of funding employee loans to
profit available for distribution to ordinary shareholders. This
adjusted earnings figure is divided by the weighted average
number of ordinary shares.
121
Annual Financial Report Period ending 30 June 2013
37. Share based payment plans (continued)
Share Grant Scheme (Current)
The Company has established a tax-exempt Employee Share
Grant Scheme (ESGS) as the main equity participation
platform for general employees. The ESGS is open to all full-
time and permanent part-time staff in the Group (excluding
directors and senior executives) who can elect to acquire fully
paid ordinary shares. It is was intended that grants under the
ESGS would be made annually subject to Board discretion and
having regard to company performance.
Employees will generally be entitled to participate in rights
attached to the shares including to receive dividends and to
vote at general meetings. The shares are restricted for three
years unless the employee leaves the Company. The first grant
to general employees was made in January 2009 with 764,504
fully paid ordinary shares being issued at $10.78. A second
grant to general employees was made in March 2010 with
340,039 fully paid ordinary shares being issued at $10.03 and
a third grant to general employees was made in February 2011
with 327,233 fully paid ordinary shares being issued at $9.78.
There were no grants under the ESGS during the 2012 and
2013 financial years.
The issue price is the volume weighted average price of the
Company’s shares traded over the five days prior to the issue.
The share issues were valued and expensed in accordance
with applicable accounting requirements. The expense
recognised in the income statement in relation to share-based
payments is disclosed on the previous page. As at 30 June
2013 there were 278,310 fully paid ordinary shares held by
the Plan Trustee.
Bendigo and Adelaide Bank Employee Share Ownership Plan
(Discontinued)
The Company discontinued in 2006 the existing loan-based
Employee Share Ownership Plan (the Plan) that was open to
all employees in the Group, including the Managing Director
and senior executives. The Plan will continue as a legacy plan
until such time as the loans provided to fund share purchases
under the Plan have been repaid. There have been no issues
of shares under this Plan since November 2004.
Shares were issued under the Plan at market value. The
terms of the Plan are consistent with the Share Ownership
Plan described earlier. The Plan provides staff members with
an interest-free loan for the sole purpose of acquiring Plan
shares. Staff cannot deal in the shares until the loan has been
repaid. The primary benefit under the terms of the Plan is the
financial benefit of the limited recourse interest-free loan.
The loan will be repayable progressively out of after tax
dividends (if any) paid on the shares and the sale of
unexercised renounceable rights (if any). A participant is not
otherwise obliged to repay all or part of the outstanding loan
while he or she is an employee of the Bendigo and Adelaide
Bank Group. The loan must be fully repaid when a participant
ends employment and before the participant can sell, transfer,
mortgage or otherwise deal with the shares.
If a participant’s employment ends and the participant
have not repaid the loan within the time period specified
by the Board, the Company may sell, transfer or realise the
participant’s shares and apply those funds to cover the
costs of the sale and to repay the loan. If there is a shortfall
in repaying the loan once the participant’s shares are sold,
the Company will not have any further recourse against the
participant.
The notional value of the limited recourse interest-free
loan provided to the Managing Director and relevant senior
executives under this legacy Plan is disclosed in the
remuneration tables that accompany this report. Information
on shares issued and loans provided under this Plan have
been aggregated into the above table titled “Recognised
share-based payment expenses”.
122
38. Auditor's remuneration
Total fees paid or due and payable to Ernst & Young (Australia) 1
Audit and review of financial statements 2
1,817,403
2,027,396
1,297,440
1,198,039
Consolidated
Parent
2013
$m
2012
$m
2013
$m
2012
$m
Audit-related fees
Regulatory 3
Non-regulatory 4
Total audit-related fees
All other fees 5
Taxation services
Other advice
Total other fees
620,318
3,502
623,820
125,705
50,470
176,175
274,315
42,745
317,060
182,334
44,805
227,139
565,985
3,502
569,487
93,205
-
93,205
211,665
3,399
215,064
162,084
44,805
206,889
Total remuneration of Ernst & Young Australia
2,617,398
2,571,595
1,960,132
1,619,992
1 Fees exclude goods and services tax
2 Audit and review of financial statements includes payments for the audit of the financial statements of the Group and parent, including controlled entities that are
required to prepare financial statements.
3 Audit-related fees (Regulatory) consist of fees for services required by statute or regulation that are reasonably related to the performance of the audit of the Group's
financial statements and are traditionally performed by the external auditor. These services include assurance of the Group’s compliance with APRA and Australian
Financial Services Licensing reporting and compliance requirements.
4 Audit-related (Non-regulatory) consist of fees for assurance and related services not required by statute or regulation but are reasonably related to the performance
of the audit or review of the Group's financial statements which are traditionally performed by the external auditor. These services include assurance of the Group's
credit assessments and reviews of the Group's acquisition accounting and tax consolidation processes.
5 All other fees, including taxation services and other advice are incurred under the audit committee's pre-approval policies and procedures, having regard to the
auditor’s independence requirements of applicable laws, rules and regulations, and assessment that each of the non-audit services provided would not impair the
independence of Ernst & Young.
123
Annual Financial Report Period ending 30 June 2013
39. Key management personnel
Details of key management personnel for the Group and the
Company for the 2013 financial year are presented in the
2013 Remuneration Report.
Compensation for key management personnel for the
2013 and 2012 financial years:
Short-term benefits
Post employment
benefits
Other long term
benefits
Termination
benefits
2013
2012
$6,824,232
$6,326,221
$280,599
$397,628
$67,448
$73,366
-
-
Share-based
payments
$1,681,139
$3,030,036
Total
$8,853,418
$9,827,251
Details of remuneration disclosures in relation to the
Company’s key management personnel are presented in
the Remuneration Report which forms part of the Directors’
Report. The remuneration disclosures in the Remuneration
Report have been audited.
Equity holdings of key Management Personnel
All equity transactions with key management personnel
have been entered into under terms and conditions no more
favourable than those the entity would have adopted if dealing
at arm’s length other than shares issued under the Employee
Share Ownership Plan. Issues of shares under the Employee
Share Plan are made under conditions disclosed in Note 37.
Shares held by non-executive directors:
The details of shareholdings in the Company held (directly
or nominally) by each director or their related parties (their
close family members or any entity they, or their close family
members, control, jointly control or significantly influence) are
set out below.
Name
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
1 July 2012
Net Change
30 June 2013
Non-Executive Directors
R Johanson
J Dawson
J Hazel
J Hey
R Hubbard 1
D Matthews
T O’Dwyer 1
D Radford
A Robinson
337,407
33,444
12,462
3,114
-
7,295
74,530
1,900
6,921
1,000
100
-
-
-
-
-
-
-
(9,566)
2,408
2,958
1,374
4,500
4,112
(74,530)
-
3,079
500
-
-
350
-
-
-
-
-
327,841
35,852
15,420
4,488
4,500
11,407
-
1,900
10,000
1,500
100
-
350
-
-
-
-
-
124
1 Mr Hubbard was appointed on 2 April 2013 and Mr O’Dwyer retired on 13 August 2012.
39. Key management personnel (continued)
Name
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
1 July 2011
Net Change
30 June 2012
Non-Executive Directors
R Johanson
J Dawson
J Hazel
J Hey
D Matthews
T O’Dwyer 1
D Radford
A Robinson
333,604
28,199
10,659
-
6,925
73,575
1,900
5,966
1,000
100
-
-
-
-
-
-
3,803
5,245
1,803
3,114
370
955
-
955
-
-
-
-
-
-
-
-
337,407
33,444
12,462
3,114
7,295
74,530
1,900
6,921
1,000
100
-
-
-
-
-
-
Shares held by the Managing Director and senior
executives
Performance shares and deferred shares are granted as
equity compensation under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan (Plan) to certain
key management personnel as the long term incentive and
deferred base remuneration components.
Performance shares
The movements in performance shares granted by the
Company for FY2013 and FY2012 are set out below.
30 June 2013
Current Executives
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins
T Piper
S Thredgold
A Watts
Balance at
1-Jul-12
Granted as
Remuneration
Number
Exercised /
Vested
Number Lapsed
Balance at
30-Jun-13
Exercisable
Not Exercisable
417,109
-
(198,712)
-
-
-
-
-
-
-
-
27,397
13,699
20,091
27,397
27,397
20,548
13,699
20,548
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
218,397
27,397
13,699
20,091
27,397
27,397
20,548
13,699
20,548
-
-
-
-
-
-
-
-
-
218,397
27,397
13,699
20,091
27,397
27,397
20,548
13,699
20,548
125
Annual Financial Report Period ending 30 June 2013 39. Key management personnel (continued)
Balance at
1-Jul-11
Granted as
Remuneration
Number
Exercised /
Vested
Number Lapsed
Balance at
30-Jun-12
Exercisable
Not Exercisable
30 June 2012
Current Executives
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins
T Piper
S Thredgold
A Watts
493,328
51,793
27,318
31,032
50,610
51,793
37,898
21,157
31,737
-
-
-
-
-
-
-
-
-
(76,219)
(21,245)
(11,108)
(13,205)
(20,841)
(21,245)
(15,610)
(9,003)
(13,505)
-
417,109
(30,548)
(16,210)
(17,827)
(29,769)
(30,548)
(22,288)
(12,154)
(18,232)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The movements in shareholdings in the Company for senior
executives (including their related parties) are below:
FY2013
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins
T Piper
S Thredgold
A Watts
126
Type 1
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
1 July
12,936
428,761
-
8,624
171,615
500
3,018
80,089
-
4,312
36,250
-
8,624
84,836
-
6,899
159,770
-
5,390
63,371
-
3,449
28,780
-
4,312
60,030
-
Granted as
remuneration
Received on
vesting 2
Net change other
-
-
-
13,699
-
-
6,849
-
-
10,046
-
-
13,699
-
-
13,699
-
-
10,274
-
-
6,849
-
-
10,274
-
-
-
198,712
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12,936)
33,338
-
(8,624)
15,777
-
(3,018)
(10,056)
-
(4,312)
6,243
-
(8,624)
12,638
-
(6,899)
(10,890)
-
(5,390)
(1,610)
-
(3,449)
4,765
-
(4,312)
6,286
-
417,109
-
-
-
-
-
-
-
-
30 June
-
660,811
-
13,699
187,392
500
6,849
70,033
-
10,046
42,493
-
13,699
97,474
-
13,699
148,880
-
10,274
61,761
-
6,849
33,545
-
10,274
66,316
-
39. Key management personnel (continued)
FY2012
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins
T Piper
S Thredgold
A Watts
Type 1
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
1 July
-
334,919
-
-
143,825
500
-
66,795
-
-
21,788
-
-
61,910
-
-
155,012
-
-
46,562
-
-
18,921
-
-
45,239
-
Granted as
remuneration
12,936
-
-
8,624
-
-
3,018
-
-
4,312
-
-
8,624
-
-
6,899
-
-
5,390
-
-
3,449
-
-
4,312
-
-
Received on
vesting 2
Net change other
-
76,219
-
-
-
17,623
-
-
21,245
6,545
-
-
-
-
11,108
2,186
-
-
-
-
13,205
1,257
-
-
-
-
20,841
2,085
-
-
-
-
21,245
(16,487)
-
-
-
-
15,610
1,199
-
-
9,003
-
-
13,505
-
-
-
856
-
-
1,286
-
30 June
12,936
428,761
-
8,624
171,615
500
3,018
80,089
-
4,312
36,250
-
8,624
84,836
-
6,899
159,770
-
5,390
63,371
-
3,449
28,780
-
4,312
60,030
-
1 Ordinary share amounts include ordinary shares issued under the employee share ownership plan.
2 Shares allocated in relation to vested performance shares.
127
Annual Financial Report Period ending 30 June 2013 39. Key management personnel (continued)
Loans to directors and named executives
(including their related parties)
Details of individuals (including their related parties) with
loans above $100,000 in the reporting period are as follows:
Balance at
beginning of
period
Interest
charged
Interest not
charged
Write-off Balance at end of
period
Number at
30 June 2013
$’000
$’000
$’000
$’000
$’000
1,923
3,188
4,779
4,451
6,702
7,639
121
200
254
282
375
482
-
-
24
35
24
35
-
-
-
-
-
-
2,132
1,923
5,103
4,779
7,235
6,702
5
5
8
8
13
13
Non-Executive Directors
Executives 1
Total Directors and Executives
2013
2012
2013
2012
2013
2012
1 Balances include interest-free loans provided to the Managing Director and senior executives in connection with share issues under employee share plans as
described at Note 37. Details of individuals (including their related parties) with loans in the reporting period are as follows:
Balance at
beginning of
period
Interest
charged
Interest not
charged
Write-off Balance at end of
period
Highest owing in
period
$’000
$’000
$’000
$’000
$’000
$’000
504
405
54
500
460
38
24
1 1
30
28
-
-
-
-
-
-
-
-
-
-
576
383
291
500
382
712
405
317
503
466
Non-Executive Directors
R Johanson
J Dawson
D Radford
T Robinson
D Matthews
1 The facilities were fully repaid shortly after the start of the financial year. In addition the facilities were not redrawn until late in the financial year.
128
39. Key management personnel (continued)
Balance at
beginning of
period
Interest charged
Interest not
charged
Write-off
Balance at end of
period
Highest owing in
period
$’000
$’000
$’000
$’000
$’000
$’000
206
137
159
43
74
477
374
464
159
2,066
560
35
25
-
9
-
4
-
34
32
28
-
117
29
-
1
8
-
6
-
3
-
-
-
6
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
183
120
136
87
65
511
711
464
136
1,678
968
29
15
206
167
159
103
74
516
784
492
159
2,066
976
35
47
Executives
M Hirst
Staff share loan
Loans
M Baker
Staff share loan
Loans
D Bice
Staff share loan
Loans
J Billington
Loans
R Fennell
Loans
R Jenkins
Staff share loan
Loans
S Thredgold
Loans
A Watts
Staff share loan
Loans
Terms and conditions of director and senior
executive loans
The loans to directors and senior executives are made in
the ordinary course of the company’s business and on an
arms-length basis. The loans are processed and approved in
accordance with the Bank’s standing lending processes and
prevailing terms and conditions.
Terms and conditions of the loans under Employee Share
Ownership Plan
Loans have been provided to senior executives under the
terms of the Bank’s legacy Employee Share Ownership Plan
(Plan). Details of the Plan’s terms and conditions are provided
at Note 37 to the financial statements.
Other transactions of directors and director
related entities
Mr R Johanson is a director and part-time employee, but
no longer a sherholder, of the Grant Samuel Group, which
is one of a range of firms which may be engaged to provide
professional advisory services to Bendigo and Adelaide Bank
Ltd. The services are based on normal commercial terms
and conditions. A protocol, approved by the Board, has been
established for the engagement of Grant Samuel by the
Bank which includes arrangements for dealing with conflicts
of interest. The services are provided in accordance with
scheduled fee rates which were discussed and approved by the
Board in the absence of Mr Johanson. Grant Samuel was not
engaged to provide advisory services to the Company during
the reporting period and accordingly there were no fees paid to
Grant Samuel for the year (fees paid FY2012: $273,322).
129
Annual Financial Report Period ending 30 June 2013 40. Related Party Disclosures
Ultimate Parent Entity
Bendigo and Adelaide Bank Limited is the ultimate parent entity.
Wholly owned Group transactions
Bendigo and Adelaide Bank Limited is the parent entity of all
entities listed in Note 20 - Particulars in relation to controlled
entities. Transactions undertaken during the financial year
with those entities are eliminated in the consolidated financial
report. The transactions principally arise from the provision
of administrative, distribution, corporate and general banking
services.
Additionally, Bendigo and Adelaide Bank pays operating costs
and banks receipts on behalf of certain controlled entities
which are financed via unsecured interest free intercompany
loans. The loans have no fixed repayment date. Amounts
due from and due to controlled entities at balance date are
shown in the balance sheet. The balance of these inter-
company loans is included in the net amount owing to/(from)
subsidiaries column of the table below.
Interest received or receivable from and paid or payable to
controlled entities and dividends received and receivable
from controlled entities is disclosed in Note 4 - Profit and is
included in the table below.
All material transactions excluding dividends, between
Bendigo and Adelaide Bank and its subsidiaries during the
period were as follows:
Net receipts and fees
(paid to)/ received
from subsidiaries
Supplies, fixed assets
and services charged
to subsidiaries
Net amount owing to/
(from) subsidiaries at
30 June 2013
Bendigo Finance Pty Ltd
National Mortgage Market Corporation Limited
Community Telco Australia Pty Ltd 1
Victorian Securities Corporation Limited
Bendigo Financial Planning Limited
Rural Bank Limited
Community Developments Australia Pty Ltd
Community Exchanges Australia Pty Ltd
Sandhurst Trustees Limited
Oxford Funding Pty Ltd
ACN 092 167 904 (BOCA) Pty Ltd
Adelaide Equity Finance Pty Ltd
Leveraged Equities
Co-op Member Services Pty Ltd
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
$m
(0.1)
0.2
0.6
0.6
2.2
-
4.3
(9.6)
15.8
7.8
0.5
2.0
0.9
1.3
-
0.6
26.1
16.7
-
(1.9)
25.2
(8.9)
59.8
29.3
304.4
1,106.5
1.2
-
$m
-
-
-
-
3.9
-
-
3.5
13.6
13.1
13.0
10.0
-
0.8
-
-
9.9
10.3
-
-
2.0
-
-
-
12.0
15.9
-
-
$m
(1.2)
(1.1)
11.6
11.0
(1.7)
-
-
(4.3)
(4.8)
(7.0)
(27.4)
(14.9)
(8.6)
(9.5)
-
-
11.6
(60.0)
-
-
14.3
(8.9)
(240.2)
(300.0)
(168.4)
(520.8)
-
(1.2)
130
1 Community Telco Australia Pty Ltd became a fully owned subsidiary from 1 December 2012.
40. Related Party Disclosures (continued)
Hindmarsh Financial Service Pty Ltd
AB Management Pty Ltd
Adelaide Managed Funds Limited
Hindmarsh Adelaide Property Trust
Homesafe Trust
Pirie St Nominees Pty Ltd
Net receipts and fees
(paid to)/ received
from subsidiaries
Supplies, fixed assets
and services charged
to subsidiaries
Net amount owing to/
(from) subsidiaries at
30 June 2013
$m
-
-
1.8
2.5
0.1
1.8
-
0.1
-
-
11.3
(10.3)
$m
-
-
-
-
0.2
0.3
-
0.1
-
-
-
-
$m
(1.4)
(1.4)
16.2
14.4
1.1
1.2
(4.9)
(4.9)
(330.9)
(287.4)
1.1
(10.2)
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Dividends paid by subsidiaries are disclosed in the table below.
Bendigo and Adelaide Bank provides funding and guarantee
facilities to several subsidiary companies as detailed in the
following table. The balance outstanding on these facilities are
included in the net amount owing to/(from) subsidiaries in the
above table.
All funding and guarantee facilities are provided to subsidiary
companies on normal commercial terms and conditions.
Several subsidiary companies have bank accounts and
investment funds held with Bendigo and Adelaide Bank
Limited under normal terms and conditions. These balances
are included in the amount owing to/(from) subsidiaries in the
above table.
Subsidiary
Sandhurst Trustees Limited
Community Telco Australia Pty Ltd
Facility
Standby
Guarantee
Overdraft
Limit
$m
12.0
0.5
2.5
Drawn/issued at
30 June 2013
$m
-
-
0.6
Guarantees disclosed in the above table with a zero limit are
less than $0.1 million.
All funding and guarantee facilities are provided to subsidiary
companies on normal commercial terms
and conditions.
Several subsidiary companies have bank accounts and
investment funds held with Bendigo and Adelaide Bank
Limited under normal terms and conditions. These balances
are included in the amount owing to/(from) subsidiaries in the
above table.
The following dividends received by Bendigo and Adelaide
Bank Limited from subsidiary companies are included in the
above table:
Sandhurst Trustees Limited
Victorian Securities Corporation Limited
Oxford Funding
Leveraged Equities
During the year there were no other material transactions
between subsidiary companies.
2013
2012
2013
2012
2013
2012
2013
2012
$m
55.4
-
-
4.7
-
2.1
60.0
-
131
Annual Financial Report Period ending 30 June 2013
40. Related Party Disclosures (continued)
Other related party transactions
Securitised and sold loans
The Bank securitised loans totalling $3,053.0 million (2012:
$1,556.9 million) during the financial year. The consolidated
Group does invest in some of its own securitisation programs
where the Bank holds A & B notes equivalent to $6,520.4
million as at 30 June 2013 (2012: $5,719.4 million). The Bank
does invest in other securitisation programs unrelated to the
Bank as part of normal investment activities.
Homesafe Solutions Pty Ltd
Community Sector Enterprises Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Strategic Payments Services Pty Ltd
Community Telco Australia Pty Ltd (1)
Linear Financial Holdings Pty Ltd
Homebush Financial Services Ltd
Vicwest Community Enterprises Ltd
Joint venture entities and associates
Bendigo and Adelaide Bank Limited has investments in joint
venture entities and associates are disclosed in Note 21
- Investments accounted for using the equity method. The
Group has transactions with the joint venture entities and
associates, principally relating to commissions received and
paid, services and supplies procured from joint ventures
and associates and fees charged in relation to the provision
of banking, administrative and corporate services. These
revenue and expense items are included in the relevant values
disclosed in Note 4 - Profit. The transactions are conducted
on terms and conditions no more favourable than those which
it is reasonable to expect would have been adopted if dealing
with the joint venture entities and associates at arm's length
in the same circumstances.
During the financial year, transactions took place between the
Bendigo and Adelaide Bank Group and joint venture entities
and associates as follows:
Commissions
and fees paid to
joint ventures
Supplies
and services
provided to joint
ventures
Amount owing
to/(from) joint
ventures at
30 June 2013
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
$m
4.3
4.9
8.6
7.3
0.8
1.0
12.2
11.6
-
0.2
-
-
0.6
0.3
0.1
-
$m
-
-
3.8
1.5
0.5
0.6
-
-
-
-
-
-
0.1
-
3.0
-
$m
-
-
0.2
0.1
-
-
-
-
-
(0.7)
(4.7)
(4.4)
0.1
0.1
(2.9)
-
(1) Community Telco Australia Pty Ltd became a fully owned subsidiary from 1 December 2012.
132
Dividends received and receivable from joint ventures’ and
associates are disclosed in Note 4 – Profit.
Bendigo and Adelaide Bank Limited provides loans,
guarantees and/or overdraft facilities to joint ventures’ and
associates in connection with cash flow management, and
the payment of administration costs on behalf of the joint
ventures’ and associates. The loans have agreed repayment
terms which vary according to the nature of the facility. These
loans are included in the net amount owing to/(from) joint
ventures’ and associates in the above table.
41. Risk Management
Risk Oversight
The management of risk is an essential element of the
Group’s strategy, profitability management and is central to
the way the Group operates.
The Board, being ultimately responsible for risk management
associated with the Group’s activities, has established a
Group Risk Management Framework (GRMF) which provides an
integrated governance and accountability framework, policies
and controls to identify, assess, monitor and manage risk.
In addition to strategic and reputation risk the material
business risks relating to the Group can be categorised as:
credit, market (including interest rate and currency), liquidity,
and operational risk (includes compliance, contagion,
environment/sustainability risks).
The GRMF establishes a framework for risk governance which
involves managing the Bank’s risks within the limits and
tolerances detailed in the Group’s risk appetite statement and
is underpinned by a system of delegations, passing from the
Board through Board committees, the Managing Director (MD),
management committees to the various risk, support and
business units of the Group.
An essential element of the GRMF is the risk culture of
the Group. Management of risk is the responsibility of the
business units of the Group. Embedded in the Group’s
culture are the values of all staff doing the right thing, taking
responsibility for managing risks inherent in their role and
engaging with the Group’s stakeholders including the broader
community to deliver a sustainable business proposition for
all. The Group’s risk management culture is also demonstrated
by many aspects of management of the Group, including:
Board Committee responsibilities
The Board has approved policies that support the
implementation of a risk oversight and management
framework for the Group. These policies are overseen by the
Board committees with each committee operating under a
Board approved charter that is reviewed annually.
Each committee has established Terms of Reference that
describes the relevant responsibilities in respect to oversight
and monitoring of Board-approved risk management policies.
The committees evaluate developments in respect to the
Group’s structure and operations, as well as economic,
industry and market developments that may impact the
Group’s management of risk.
Executive responsibilities
On a day to day basis each executive, manager and staff
member are responsible for carrying out their roles in a way
that manages risk in line with policies and procedures.
Whilst the Board has responsibility for approving the Group’s
appetite for risk, the MD and other executive committee
members are responsible for developing strategies and
business plans commensurate with that risk appetite.
The executive committee has responsibility for ensuring that
the Board approved strategies and decisions are appropriately
implemented as well as managing and monitoring the day to
day activities of the Group including the management of risk
and consideration of emerging risks and opportunities.
The executive has a number of committees that assists the
executive consider risk management matters including the Asset
Liability Management Committee, Management Credit Committee
and the Operational Risk Committee.
> Risk is managed both top down and bottom up.
Independent review
> Risk management is embedded in strategy,
planning, policy (including remuneration) and
procedures.
> An ability to identify opportunities, strive for
quality and efficiency and minimise losses.
> Maintaining risk competencies especially for key
roles.
> Regular discussion on risk at the business unit
level.
> Acting promptly to manage risks and events
whether internal or external.
> The existence of a close working relationship/
partnership between the business and risk
functions and acceptance of a “healthy tension”
between the functions.
Board responsibilities
In accordance with the Board charter, the Board principally
through the Audit, Credit, Risk, Change framework and
Technology Governance and Governance & HR committees
oversees the establishment, implementation, review and
monitoring of risk management systems and policies, taking
into account the risk appetite of the Group, the overall business
strategy, management expertise and the external environment.
This includes approving risk limits and risk policies.
Group Assurance (Internal audit)
The Group Assurance function operates under a charter and
annual audit plan approved by the Board Audit Committee.
The Board, on recommendation of the Board Audit Committee,
approves the appointment of the Head of Group Assurance.
The committee receives reports at each meeting in respect
to the outcomes and status of the internal bank assurance
plan. The independent group assurance function audits all
functions across the Group including the effectiveness of the
Group’s risk management and internal compliance and control
systems, in line with the Bank assurance plan and has direct
access to the Board through the Board Audit Committee.
Group Risk
Group Risk is an independent function within the Group and
provides the frameworks, policies and procedures to assist
the Group in managing credit and operational risk in line with
the risk appetite set by the Board.
The Group Credit Risk function is responsible for reviewing
portfolio credit quality, policy development and promulgation,
credit policy compliance, the assessment of large credit
exposures and manages the performance of the credit
management system at the Group level.
The Group Operational Risk function is responsible for
providing the frameworks, tools and support to assist the
business in the management of its operational risk (including
regulatory compliance, business continuity, financial crimes
and dealings through its partners).
133
Annual Financial Report Period ending 30 June 2013 41. Risk Management (continued)
The Group insurance function develops an insurance strategy
and program for “insurable risk” which is approved by the
Board risk committee.
The Group Risk function has direct access to the Board
through the Board Credit and Risk committees.
Middle office
A middle office function has been established within Finance
and Treasury that is responsible for monitoring market risk and
treasury policy compliance (including adherence to tolerance
limits). Middle office reports to the Chief Financial Officer
and has direct access to the Asset Liability Management
Committee and in turn the Board Risk Committee.
MD and CFO Assurance
As part of the statutory reporting arrangements for the Group, the
Managing Director (MD) and Chief Financial Officer (CFO), provide a
written declaration to the Board that:
> The Group’s financial statements present a true
and fair view, in all material respects, of the
Group’s financial position and performance, are in
accordance with the Corporations Act and comply
with the Corporations Regulations 2001 and
accounting standards.
> The financial records of the Group for the financial
year have been properly maintained in accordance
with Section 286 of the Corporations Act 2001.
> The above statements regarding the integrity of the
financial reports are founded on a sound system
of risk management and internal control and that
the systems, including those relating to business
continuity, are operating effectively in all material
respects in relation to financial reporting risks.
> Any other matters that are prescribed by the
Corporations Act regulations as they relate to the
financial statements and notes to the financial
statements are met.
To provide this assurance a formal due diligence and
verification process, including attestations from management,
is conducted. This assurance is provided each six months in
conjunction with the half year and full year financial reporting
obligations. The statements are made on the basis that they
provide a reasonable but not absolute level of assurance and
do not imply a guarantee against adverse circumstances that
may arise in future periods.
In addition a description of the systems and policies employed
to manage the key risks to which the Bank and Group is
exposed is provided to APRA. The MD confirms annually the
integrity of these descriptions to APRA with the endorsement
of the Board.
Risk Principles
Overview
The Group’s Risk Management Principles and Systems
Description document summarises the risk management
control framework of the Group. These principles are approved
by the Board and may be amended with endorsement of the
Board. Specific details and responsibilities for managing
each category of risk are contained in the relevant policy
statements, frameworks and procedural manuals.
The risk principles are summarised below.
Risk management strategy
A structured framework has been established to ensure that
the risk management objectives are linked to the Group’s
business strategy and operations. The risk management
strategy is underpinned by an integrated framework of
responsibilities and functions driven from Board level down to
operational levels, covering all aspects of risk, most notably
market, credit, liquidity, operational (includes compliance,
contagion and environmental), strategic, reputation and
emerging risks.
The framework recognises the governance structure and risk
management framework referred to above.
Risk limits
Risk limits for market risk, credit risk and capital at risk are set
and monitored by the appropriate management committees within
the risk appetite approved by the Board.
The management of operational risk is performed using
qualitative self assessment and the Group has defined general
parameters to manage the Group-wide operational risk profile
to comply with the approved risk appetite and tolerances.
Limits (which may be in the form of net interest income, net
profit before or after tax, retained earnings, market value
of equity or other key performance indicators) are based
upon the level of capital the Board is willing to place at risk.
Limits are calculated by aggregating quantifiable measures of
market, credit and operational risk.
Prior to approval by the Board, limits are formally reviewed on
a regular basis by the appropriate management and Board
committees, who consider changes in market conditions,
strategy or risk appetite. The limits are set and reviewed
regularly by the Asset Liability Management Committee,
Operational Risk Committee, Management Credit Committee
and Executive Committee. They align with the financial forecast
and planning cycle take into account historic and projected
risk-adjusted performance and are independently monitored.
134
41. Risk Management (continued)
Risk management measurement reporting and control
Effective measurement, reporting and control of risk is vital
to manage the Group’s business activities in accordance with
overall strategic and risk management objectives. The risk
management, reporting and control framework requires the
quantification of market, credit and liquidity risk, the capability
to aggregate and monitor exposures, a comprehensive set of
limits to ensure that exposures remain within the approved
risk appetite, and a mechanism for evaluating performance
on a risk-adjusted basis. The management of operational risk
is based on a documented policy and framework. The Board
has defined general parameters to manage the Group-wide
operational risk profile to comply with the approved risk
appetite and tolerances which considers both downside risk
and opportunities.
Internal controls
The risk management framework requires robust internal
controls across all aspects of the business as well as strong
support functions covering legal, regulatory, governance,
reputation, finance, information technology, human resources
and strategy. Consequently the effectiveness and efficiency
of controls is evaluated in all new and amended products,
processes and systems or where external and internal
factors impact the operating environment (e.g. changes in
organisation structure, growth, new regulation).
Risk management systems
Accurate, reliable and timely information is vital to support
decisions regarding risk management at all levels. The
requirements span a diverse range of risk functionality
including market and credit risk analysis systems,
financial forecasting, strategic planning, asset and liability
management, performance measurement, operational risk and
regulatory reporting, as well as trading and trade processing
systems and those systems supporting our staff.
Data reconciliation is established to provide for the integrity of
the information used and appropriate security controls around
all systems. Back-up and recovery procedures are defined
and business continuity plans approved and communicated to
promote resilience and minimise the impact of an incident.
The Group maintains and implements specific policies and
procedures to measure, monitor, manage and report on the
material and emerging risks to which the Group is exposed.
Each policy contains requirements to be met for review and
approval.
Material Risks
Overview
The GRMF of the Group is structured upon:
> Core Risk Principles – overriding principles
governing all activities and risk monitoring
procedures; and
> Specific Risk Policies – appropriate policies,
framework documents, procedures and processes
implemented to manage specific risks to which
the Group is exposed.
The Board, and industry regulators, have identified the
material risks to which the Group is exposed as being credit,
market (including interest rate and currency), liquidity and
operational risk. Specific risk management structures have
been established by the Group to manage these and other
risks (e.g. reputation, emerging, strategic, contagion and
sustainability).
The material risks are described below.
Credit risk
Credit risk is the potential that the Group will suffer a financial
loss due to the unwillingness or inability of counterparties to
fully meet their contractual debts and obligations.
The Board Credit Committee is responsible for monitoring
adherence to credit policies, practices and procedures within
the Group. The Board has established levels of delegated
lending authority under which various levels of management
(including the management credit committee), partners and
the Board credit committee can approve transactions.
Group Credit Risk has responsibility for:
> Managing, maintaining and enhancing the currency
and relevance of the Group’s credit policies;
> Providing support and analysis of credit portfolio
information for credit management purposes;
> Reporting to the management credit committee and the
Board credit committee and
> Jointly approving larger transactions that are not
required to be submitted to the management credit
committee for approval.
135
Annual Financial Report Period ending 30 June 2013 41. Risk Management (continued)
The table below shows the maximum exposure to credit
risk for the components of the balance sheet, including
derivatives. The maximum exposure is shown gross, before
the effect of mitigation through the use of master netting and
collateral agreements.
Gross maximum exposure
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale - debt securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity investments
Derivatives
Shares in controlled entities
Amounts receivable from controlled entities
Loans and other receivables - investment
Gross loans and other receivables
Contingent liabilities
Commitments
Total credit risk exposure
Consolidated
2013
$ m
383.8
293.9
5,465.2
535.5
323.3
615.4
18.1
31.9
-
-
554.1
50,125.0
58,346.2
232.9
5,474.3
5,707.2
64,053.4
2012
$ m
288.8
272.2
4,366.1
444.8
388.4
509.7
124.7
48.5
-
-
453.0
48,379.0
55,275.2
235.9
4,611.8
4,847.7
60,122.9
Parent
2013
$ m
258.1
292.2
5,465.8
1,362.9
1.8
1,229.9
4.5
182.6
526.5
544.7
554.1
44,759.1
55,182.2
227.8
5,212.6
5,440.4
2012
$ m
175.8
266.3
4,367.0
1,594.6
1.8
837.4
4.1
547.3
604.1
1,090.8
453.0
41,455.1
51,397.3
223.4
4,319.1
4,542.5
60,622.6
55,939.8
Where financial instruments are recorded at fair value the
amounts shown above represent the current credit risk
exposure but not the maximum risk exposure that could arise in
the future as a result of changes in values.
The effect of collateral and other risk mitigation techniques is
shown in the Ageing table within this note.
Concentrations of the maximum exposure
to credit risk
Concentration of risk is managed by client/counterparty, by
geographical region and by industry sector. The maximum
credit exposure to any client or counterparty as at 30 June
2013 was $856.4 million (2012: $652.6 million) before
taking account of collateral or other credit enhancements and
$856.4 million (2012: $652.6 million) net of such protection.
Geographic
The Group’s financial assets, before taking into account any
collateral held or other credit enhancements can be analysed
by the following geographic regions:
136
Gross maximum exposure
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas/other
Total credit risk exposure
Consolidated
2013
$ m
22,619.7
13,183.5
840.0
9,836.3
7,907.9
7,552.7
1,504.9
608.4
64,053.4
2012
$ m
Parent
2013
$ m
22,347.6
23,937.7
12,835.2
823.2
9,697.2
6,870.4
6,055.9
1,124.0
369.4
11,775.7
807.5
8,537.5
7,476.8
6,139.9
1,356.8
590.7
2012
$ m
23,380.6
10,894.0
784.1
8,278.6
6,390.9
4,838.9
1,019.8
352.9
60,122.9
60,622.6
55,939.8
41. Risk Management (continued)
Industry sector
An industry sector analysis of the Group’s financial assets,
before taking into account collateral held or other credit
enhancements, is as follows:
Industry Concentration
Accommodation and food services
Administrative and support services
Agriculture, forestry and fishing
Arts and recreation services
Construction
Education and training
Electricity, gas, water and waste services
Financial and insurance services
Financial services
Health care and social assistance
Information media and telecommunications
Manufacturing
Margin Lending
Mining
Other
Other Services
Professional, scientific and technical services
Public administration and safety
Rental, hiring and real estate services
Residential/consumer
Retail trade
Transport, postal and warehousing
Wholesale trade
Consolidated
Parent
Gross maximum
exposure
Gross maximum
exposure
Gross maximum
exposure
Gross maximum
exposure
2013
$ m
699.2
307.8
5,174.5
206.2
2,564.1
413.9
209.1
1,520.2
7,387.8
1,180.7
184.5
924.1
1,915.6
236.6
308.5
712.6
874.1
670.3
4,160.3
31,759.4
1,414.7
775.6
453.6
2012
$ m
644.6
310.1
4,913.8
199.8
2,307.2
411.4
208.9
1,430.6
6,288.8
1,083.3
185.1
927.5
2,333.2
240.9
176.7
673.1
833.5
584.2
4,071.8
29,630.3
1,461.9
729.7
476.5
2013
$ m
698.9
307.8
1,495.1
206.2
2,522.6
413.9
209.1
1,519.0
9,628.5
1,180.7
192.8
922.6
-
236.6
299.8
712.4
873.6
669.7
4,138.6
31,754.2
1,414.3
775.2
451.0
2012
$ m
642.9
310.1
1,467.2
191.7
2,213.1
411.4
208.9
1,428.2
9,413.8
1,082.4
191.3
897.4
-
240.9
126.6
673.1
833.0
583.6
3,525.9
28,921.2
1,399.1
724.8
453.2
64,053.4
60,122.9
60,622.6
55,939.8
The amount and type of collateral required depends on an
assessment of the credit risk of the counterparty. Guidelines
are implemented regarding the acceptability of types of
collateral and valuation parameters.
The main types of collateral obtained are as follows:
> For home loans - charges over borrowers’
residential, other properties or cash. Further,
lenders mortgage insurance (LMI) is taken out
for most loans with a loan to valuation ratio (LVR)
higher than 80 percent.
> For commercial loans - charges over specified
assets such as commercial and residential
property, inventory and trade receivables or cash,
and guarantees.
> For margin lending - charges over listed securities
and managed funds.
> For personal loans - approximately 50 percent are
secured by a charge over a specified asset, whilst
credit cards are predominantly unsecured.
Management monitors the market value of collateral, requests
additional collateral in accordance with the underlying
agreement, and monitors the market value of collateral
obtained during the review of the adequacy of the allowance
for impairment losses.
It is the Group’s policy to dispose of repossessed properties
in an orderly fashion. The proceeds are used to reduce or
repay the outstanding claim.
137
Annual Financial Report Period ending 30 June 2013 41. Risk Management (continued)
Credit quality
The credit quality of financial assets is managed by the Group
using internal credit ratings. The table below shows the credit
quality by class of asset for financial asset balance sheet
lines, based on the Group’s credit rating system.
Consolidated
2013
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale -
debt securities
High Grade
$ m
383.8
293.9
5,465.2
535.5
Financial assets held to maturity
323.3
Other assets
Financial assets available for sale -
equity investments
Derivatives
Loans and other receivables -
investment
Loans and other receivables
2012
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale -
debt securities
Other assets
Financial assets available for sale -
equity investments
Derivatives
Loans and other receivables -
investment
Loans and other receivables
-
-
31.9
-
288.8
272.2
4,366.1
444.8
-
-
48.5
-
Financial assets held to maturity
388.4
Neither past due or impaired
Standard
Grade
Sub-standard
Grade
$ m
$ m
Unrated
$ m
Consumer
Loans*
Past Due or
Impaired
$ m
$ m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
302.4
221.7
-
-
-
-
-
615.4
18.1
-
17.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12.8
Total
$ m
383.8
293.9
5,465.2
535.5
323.3
615.4
18.1
31.9
554.1
3,473.6
10,507.2
8,377.3
8,679.7
1,134.7
1,356.4
606.7
33,681.6
2,851.1
50,125.0
1,257.4
33,681.6
2,863.9
58,346.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
233.2
58.4
-
-
-
-
-
509.7
124.7
-
17.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
143.5
288.8
272.2
4,366.1
444.8
388.4
509.7
124.7
48.5
453.0
3,742.4
9,551.2
7,638.2
7,871.4
964.9
654.1
32,374.8
1,023.3
1,306.4
32,374.8
3,004.6
3,148.1
48,379.0
55,275.2
* Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
138
Neither past due or impaired
High Grade
Standard
Grade
Sub-standard
Grade
Unrated
Consumer
Loans*
Past Due or
Impaired
$ m
$ m
$ m
$ m
$ m
41. Risk Management (continued)
Parent
2013
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale -
debt securities
Financial assets held to maturity
Other assets
Financial assets available for sale -
equity investments
Derivatives
Loans and other receivables -
investment
$ m
258.1
292.2
5,465.8
1,362.9
1.8
-
-
182.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
302.4
221.7
-
-
-
-
-
1,229.9
4.5
-
17.2
964.9
544.7
526.5
Total
$ m
258.1
292.2
5,465.8
1,362.9
1.8
1,229.9
4.5
182.6
554.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12.8
Loans and other receivables
83.0
6,768.7
807.4
Amounts receivable from controlled
entities
Shares in controlled entities
-
-
-
-
-
-
33,684.4
2,450.7
44,759.1
-
-
-
-
544.7
526.5
2012
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale -
debt securities
Financial assets held to maturity
Other assets
Financial assets available for sale -
equity investments
Derivatives
Loans and other receivables -
investment
7,646.4
7,071.1
1,029.1
3,287.7
33,684.4
2,463.5
55,182.2
175.8
266.3
4,367.0
1,594.6
1.8
-
-
547.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
233.2
58.4
-
-
-
-
-
837.4
4.1
-
17.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
143.5
175.8
266.3
4,367.0
1,594.6
1.8
837.4
4.1
547.3
453.0
Loans and other receivables
81.8
5,583.0
614.7
955.4
31,819.8
2,400.4
41,455.1
Amounts receivable from controlled
entities
Shares in controlled entities
-
-
-
-
-
-
1,090.8
604.1
-
-
-
-
1,090.8
604.1
7,034.6
5,816.2
673.1
3,509.7
31,819.8
2,543.9
51,397.3
* Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
139
Annual Financial Report Period ending 30 June 2013 41. Risk Management (continued)
Ageing
Ageing analysis of past due but not impaired loans and other
receivables
Consolidated
2013
2012
Parent
2013
2012
Less than
30 days
31 to
60 days
61 to
90 days
More than
91 days
Total
Fair values of
collateral
$ m
1,560.7
1,548.7
1,552.3
1,367.7
$ m
321.6
274.1
276.4
214.6
$ m
133.8
157.3
120.1
134.2
$ m
457.6
809.5
376.1
658.7
$ m
2,473.7
2,789.6
$ m
8,486.8
7,182.7
2,324.9
7,857.1
2,375.2
5,555.1
Collectively assessed provisions (collective provisions)
Where individual loans are found not to be specifically
impaired they are grouped together according to their risk
characteristics and are then assessed for impairment. Based
on historical loss data and current available information
for assets with similar risk characteristics, the appropriate
collective provision is raised. The collective provisions are re-
assessed at each balance date.
Prudential reserve (general reserve for credit losses)
A general reserve for credit losses is maintained to cover risks
inherent in the loan portfolios.
Australian Prudential Regulation Authority (APRA) requires that
banks maintain a general reserve for credit losses to cover
risks inherent in loan portfolios. In certain circumstances
the collective provision can be included in this assessment.
Movements in the general reserve for credit losses are
recognised as an appropriation of retained earnings. The
Bank maintained a GRCL at 0.53 percent as at 30 June 2013
(2012:0.53%).
Renegotiated terms
Generally, the terms of loans are only renegotiated on a
temporary basis in the event of customer hardship. In these
cases the term of the loan is extended, but no longer than
the maximum term entitlement for the product. Original terms
are typically re-instated within a three to six month period.
The majority of retail customers proactively contact the Bank
prior to the loan becoming past due or impaired. Therefore,
the carrying value of financial assets that would otherwise be
past due or impaired whose terms have been renegotiated is
considered immaterial.
Impairment assessment
The main considerations for the loan impairment assessment
include whether any payments of principal or interest are
overdue by more than 90 days or there are any known
difficulties in the cash flows of counterparties, credit rating
downgrades, or infringement of the original terms of the
contract. The Group addresses impairment assessment in three
areas: individually assessed allowances (specific provisions),
collectively assessed allowances (collective provisions) and a
prudential reserve (general reserve for credit losses).
Individually assessed provisions (specific provisions)
The Group determines the impairment provision appropriate
for each individually significant impaired loan or advance on an
individual basis. Items considered when determining provision
amounts include the sustainability of the counterparty’s
business plan, its ability to improve performance once a
financial difficulty has arisen, projected receipts and the
expected dividend payout should bankruptcy ensue, the
availability of other financial support and the realisable value
of collateral, and the timing of expected cash flows. The
impairment losses are evaluated on a continuous basis.
Allowances are assessed on a portfolio basis for losses on
loans and receivables that are not individually significant
(including unsecured credit cards, personal loans, overdrafts,
unsecured mortgage loans) and where specific identification
is impractical. Provisions are calculated for these portfolios
based on historical loss experience.
140
41. Risk Management (continued)
Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet
its payment obligations when they fall due under normal and
stressed circumstances.
Group Treasury is responsible for implementing liquidity
risk management strategies in accordance with approved
policies and adherence is monitored by the Asset Liability
Management Committee and Board Risk Committee. This
includes maintaining prudent levels of liquid reserves and a
diverse range of funding options to meet daily, short-term and
long-term liquidity requirements.
Liquidity scenarios are calculated under stressed and normal
operating conditions to assist in anticipating cash flow needs
and providing adequate reserves.
The Group maintains a portfolio of highly marketable and
diverse assets that can be easily liquidated in the event of
an unforeseen interruption of cash flow. The Group also has
committed lines of credit that it can access to meet liquidity
needs. The liquidity position is assessed and managed under a
variety of scenarios, giving due consideration to stress factors
relating to both the market in general and specifically to the
Group. The most important of these is to maintain limits on the
ratio of net liquid assets to customer liabilities, set to reflect
market conditions. Net liquid assets consist of cash, short term
bank deposits and liquid debt securities available for immediate
sale, less deposits for banks and other issued securities and
borrowings due to mature within the next month.
The liquidity ratio during the financial year was as follows:
30 June
Average during the financial year
Highest
Lowest
2013
%
11.91
11.63
13.20
10.90
2012
%
11.09
12.09
13.67
11.04
Analysis of financial liabilities by remaining
contractual maturities
The table below summarises the maturity profile of the Group’s
financial liabilities at 30 June 2013 based on contractual
undiscounted cash flows. Cash flows which are subject to
notice are treated as if notice were to be given immediately.
However, the Group expects that many customers will not
request repayment on the earliest date the Group could be
required to pay and the table does not reflect the expected
cash flows indicated by the Group’s deposit retention history.
Consolidated
2013
Due to other financial institutions
Deposits
Notes payable
Derivatives
Other payables
Income tax payable
Convertible preference shares
Subordinated debt - at amortised cost
At call Not longer than 3
months
3 to 12 months
1 to 5 years
Longer than 5
years
$ m
379.5
$ m
-
$ m
-
12,516.6
21,044.2
12,246.8
-
-
504.9
47.1
-
-
549.6
184.7
-
-
-
6.0
10.8
144.7
-
-
14.7
17.7
$ m
-
2,058.4
1,454.1
373.0
-
-
320.4
117.4
13,448.1
21,784.5
12,434.7
4,323.3
2012
Due to other financial institutions
327.2
-
-
Deposits
Notes payable
Derivatives
Other payables
Income tax payable
Reset preference shares
Subordinated debt - at amortised cost
11,699.3
22,539.6
9,788.3
-
-
530.0
86.8
-
-
581.4
171.9
-
-
-
46.5
490.5
200.4
-
-
92.2
41.9
12,643.3
23,339.4
10,613.3
-
1,083.5
1,063.2
523.6
-
-
-
140.2
2,810.5
433.9
4,771.9
$ m
-
1.2
4,392.2
47.2
-
-
-
375.2
4,815.8
-
2.0
4,276.3
59.7
-
-
-
Total
$ m
379.5
47,867.2
6,406.7
749.6
504.9
47.1
335.1
516.3
56,806.4
327.2
45,112.7
6,411.4
955.6
530.0
86.8
92.2
662.5
54,178.4
141
Annual Financial Report Period ending 30 June 2013 41. Risk Management (continued)
3 to 12 months
1 to 5 years
Longer than 5
years
At call Not longer than 3
months
$ m
371.4
$ m
-
$ m
-
12,336.7
19,787.4
10,273.7
-
-
775.7
-
47.1
-
-
350.3
98.7
-
-
-
-
5.0
-
135.9
-
-
-
14.7
14.8
$ m
-
2,007.6
-
198.8
-
-
-
320.4
102.0
13,530.9
20,241.4
10,439.1
2,628.8
315.1
11,140.8
-
1,111.0
-
86.8
-
-
-
20,675.1
141.4
-
-
-
-
45.0
-
7,768.8
130.3
-
-
-
92.2
37.5
12,653.7
20,861.5
8,028.8
-
974.7
166.2
-
-
-
-
117.0
1,257.9
Total
$ m
371.4
44,405.9
350.3
480.6
775.7
$ m
-
0.5
-
47.2
-
5,829.9
5,829.9
-
-
316.9
6,194.5
-
-
59.5
-
6,294.3
-
-
346.2
6,700.0
47.1
335.1
438.7
53,034.7
315.1
40,559.4
497.4
1,111.0
6,294.3
86.8
92.2
545.7
49,501.9
Parent
2013
Due to other financial institutions
Deposits
Notes payable
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Convertible preference shares
Subordinated debt - at amortised cost
2012
Due to other financial institutions
Deposits
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Reset preference shares
Subordinated debt - at amortised cost
142
41. Risk Management (continued)
The table below shows the contractual expiry by maturity of
the Group’s contingent liabilities and commitments. This table
includes commitments which are not exposed to credit risk.
Consolidated
2013
Contingent liabilities
Commitments
Total
2012
Contingent liabilities
Commitments
Total
Parent
2013
Contingent liabilities
Commitments
Total
2012
Contingent liabilities
Commitments
Total
At call
Not longer than
12 months
1 to 5 years
Longer than 5
years
$ m
232.9
5,474.3
5,707.2
235.9
4,611.8
4,847.7
$ m
-
62.9
62.9
-
66.2
66.2
$ m
-
149.6
149.6
-
137.4
137.4
$ m
-
185.6
185.6
-
199.5
199.5
At call
Not longer than
12 months
1 to 5 years
Longer than 5
years
$ m
227.8
5,212.6
5,440.4
223.4
4,319.1
4,542.5
$ m
-
62.8
62.8
-
64.0
64.0
$ m
-
149.6
149.6
-
131.8
131.8
$ m
-
185.6
185.6
-
196.4
196.4
Total
$ m
232.9
5,872.4
6,105.3
235.9
5,014.9
5,250.8
Total
$ m
227.8
5,610.6
5,838.4
223.4
4,711.3
4,934.7
Market risk (including interest rate and currency risk)
Market risk is the risk that the fair value of future cash flows
of financial instruments will fluctuate due to changes in market
variables such as interest rates, foreign exchange rates, and
equity prices.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values
of financial instruments. The Board has established limits
on the interest rate risk volatility of net interest income and
market value of equity exposures. Positions are monitored
regularly and approved hedging strategies are executed to
ensure sensitivities and exposures are maintained within the
established limits.
The following table demonstrates the sensitivity to a reasonably
possible change in interest rates, with all other variables held
constant, on the Group’s income statement and equity.
The sensitivity of the income statement is the effect of
assumed changes in interest rates on the net interest for one
year, based on the floating rate financial assets and financial
liabilities held at 30 June 2013, including the effect of hedging
instruments. The sensitivity of equity is calculated by revaluing
fixed rate available for sale financial assets (including the
effect of any associated hedges), and swaps designated as
cash flow hedges, at 30 June 2013 for the effects of the
assumed changes in interest rates. The sensitivity of equity
is analysed by maturity of the asset or swap. With sensitivity
based on the assumption that there are parallel shifts in the
yield curve.
Monitoring of adherence to policies, limits and procedures is
controlled through the ALMAC and the Board risk committee.
143
Annual Financial Report Period ending 30 June 2013 41. Risk Management (continued)
Consolidated
2013
Net interest income
Ineffectiveness in cash flow hedge
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
Parent
2013
Net interest income
Ineffectiveness in cash flow hedge
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
+100 basis points
2013
-100 basis points
2013
+100 basis points
2012
-100 basis points
2012
$ m
9.4
0.5
(3.0)
6.9
6.9
135.9
(40.8)
102.0
$ m
(16.4)
(0.5)
5.1
(11.8)
(11.8)
(135.9)
40.8
(106.9)
$ m
33.7
4.4
(11.4)
26.7
26.7
195.1
(58.5)
163.3
$ m
(36.1)
(4.4)
12.2
(28.3)
(28.3)
(195.1)
58.5
(164.9)
+100 basis points
2013
-100 basis points
2013
+100 basis points
2012
-100 basis points
2012
$ m
2.2
0.5
(0.8)
1.9
1.9
129.5
(38.9)
92.5
$ m
(10.8)
(0.5)
3.4
(7.9)
(7.9)
(129.5)
38.9
(98.5)
$ m
24.3
4.4
(8.6)
20.1
20.1
185.6
(55.7)
150.0
$ m
(29.3)
(4.4)
10.1
(23.6)
(23.6)
(185.6)
55.7
(153.5)
The movements in profit are due to higher/lower interest costs
from variable rate debt and cash balances. The movement
in equity is also affected by the increase/decrease in the
fair value of derivative instruments designated as cash flow
hedges, where these derivatives are deemed effective.
Controlled entity hedges are no longer held following the
transfer of all of the assets and liabilities of Adelaide
Bank Limited to the parent entity. This analysis reflects a
scenario where no management actions are taken to counter
movements in rates.
Foreign currency risk
The Group does not have any significant exposure to foreign
currency risk, as all borrowings through the company’s Euro
medium term note program (EMTN) and Euro commercial
paper program (ECP) are fully hedged. At balance date the
principal of foreign currency denominated borrowings under
these programs was AUD $266.0 million (2012: AUD $77.3m)
with all borrowings fully hedged by cross currency swaps,
and foreign exchange swaps. Retail and business banking FX
transactions are managed by the Group’s Financial Markets
unit, with resulting risk constrained by Board approved spot
and forward limits. Adherence to limits is independently
monitored by the Treasury Operations unit.
It is the current policy of the Group that it does not trade in
derivatives or foreign currencies (i.e. the risk is managed
rather than actively sought).
Equity price risk
The Group’s exposure to equity securities at 30 June 2013
is $18.1 million (2012: $124.7 million) with $1.4 million
(2012: $109.5 million) of these listed on a recognised stock
exchange. The fair value of listed investments is affected by
movements in market prices, whilst unlisted investment fair
values are determined using other valuation methods.
Equity securities price risk arises from investments in equity
securities and is the risk that the fair values of equities
decrease as the result of changes in the levels of equity
indices and the value of individual stocks. The majority of the
value of equity investments held are of a high quality and are
publicly traded on either the ASX or BSX.
The Groups’ equity investments represent approximately
0.03 percent of total Group assets and are predominantly long
term strategic holdings, therefore short term volatility in fair
values is not considered significant and a sensitivity analysis
has not been completed.
144
41. Risk Management (continued)
Operational risk
Operational risk is defined as the risk of impact on objectives
resulting from inadequate or failed internal processes,
people and systems or from external events, including legal
and reputation risk but excluding strategic risk, that are not
already covered by other regulatory capital charges (i.e. credit
and market risks).
The Board Risk Committee is responsible for the oversight of
the operational risk management policies and effectiveness of
implementation across the Group.
The Executive Committee and each individual executive
member has day to day responsibility and accountability for
the management of operational risk in their business/support
line including, but not limited to ensuring operational risk
management strategies are in place and operating effectively.
Management and staff in each business are responsible for
identifying operational risks and determining, implementing,
monitoring and reporting on policies and practices to manage
operational risks to which their business is exposed.
In managing operational risks, the Group is cognisant of its
correlation with strategic, reputation and contagion risk.
The Group considers both the internal and external
environment as well emerging risks when monitoring and
assessing operational risk.
Inherent in the Group’s industry the following factors can also
impact the Group’s operations and outcomes:
> Globalisation & global impacts e.g. market
liquidity, investor sentiment
> Economic e.g. changes in economic growth,
interest rates
> Changes in government policy and regulation
> Demographic trends
> Technological dependency, advancements and
speed to market
> Financial convergence and competitive landscape
Group Operational Risk has a role to assist and support the
executive committee and business units to develop, implement,
monitor and report on the effectiveness of implementation
of the Group’s operational risk management framework. It
reports to the Board Risk Committee on the status of the
implementation of the framework and implications of significant
risks and risk events at the Group level.
Sustainability and climate change
Sustainability and climate change risk is defined as the risk to
the business and our stakeholders of meeting objectives due
to changes in climate and environment.
In recognition of the importance of managing this risk
(both downside and opportunity) the Group’s risk and
business functions consider the broader environment, social
responsibility and resilience in its decision making.
145
Annual Financial Report Period ending 30 June 2013 42. Financial Instruments
Fair value
Disclosed below is the estimated fair value of the Group's
financial instruments presented in accordance with the
requirements of Accounting Standard AASB 7 "Financial
Instruments - Disclosure”.
A financial instrument is defined by AASB 132 as any contract
that gives rise to both a financial asset of one entity and
a financial liability or equity instrument of another entity. A
financial liability is a contractual obligation either to deliver
cash or another financial asset to another entity, or, to
exchange financial instruments with another entity under
conditions that are potentially unfavourable.
Methodologies
The methodologies and assumptions used depend on the
terms and risk characteristics of the various instruments and
include the following:
Cash and cash equivalents, due to and from
other financial institutions
The carrying values of certain on-balance sheet financial
instruments approximate fair values. These include cash and
short-term cash equivalents, due to and from other financial
institutions and accrued interest receivable or payable. These
instruments are short-term in nature and the related amounts
approximate fair value and are receivable or payable on demand.
Derivatives (assets and liabilities)
The fair value of exchange-rate and interest-rate contracts,
used for hedging purposes, is the estimated amount the
Group would receive or pay to terminate the contracts
at reporting date. The fair value of these instruments is
disclosed under “Derivatives”.
Financial assets – held for trading (Securities)
These financial assets include floating rate notes and
discounted short term securities. The carrying value of these
assets is based on a mark to market value. Therefore the
carrying value represents fair value.
Financial assets - available for sale
Available for sale financial assets (securities) are
predominantly short-term bank accepted bills of exchange and
negotiable certificates of deposit and are carried at fair value.
Financial assets - held to maturity (Securities)
The fair value of financial assets held to maturity, including
bills of exchange, negotiable certificates of deposit,
government securities and bank and other deposits, which
are predominantly short-term, is measured at amortised book
value. Carrying value of these assets approximates fair value.
Financial assets - available for sale (share investments
and shares in controlled entities)
The fair value of share investments is based on market value
for listed share investments and carrying values for unlisted
share investments. As the listed share investments are
carried at market value, carrying value represents fair value.
146
Loans and other receivables
The carrying value of loans and other receivables is net of
specific and collective provisions for doubtful debts.
For variable rate loans, excluding impaired loans, the carrying
amount is a reasonable estimate of fair value. The net fair
value for fixed loans is calculated by utilising discounted cash
flow models (i.e. the net present value of the portfolio future
principal and interest cash flows), based on the maturity of
the loans. The discount rates applied represent the rate the
market is willing to offer for these loans at arms-length.
The net fair value of impaired loans is calculated by
discounting expected cash flows using these rates.
Investments accounted for using the equity method
These investments are carried at the proportional share
of equity invested in the joint ventures and associates,
including accumulated profit or losses of the joint ventures
and associates. The fair value has been determined using a
multiple of the latest annual profit after tax. Where the joint
venture and associate is not yet profitable the fair value has
been assumed to be equal to the carrying value.
Other assets
This category includes items such as sundry debtors, which
are short-term by nature and the carrying amount is therefore
a reasonable estimate of fair value, except for other assets
in the Company which includes investments in joint ventures.
Refer to Investments accounted for using the equity method
methodology above.
Deposits and notes payable
The carrying value of call, variable rate and fixed rate
deposits repricing within six months approximates the fair
value at balance date. The fair value of other term deposits
is calculated using discounted cash flow models, based on
the deposit type and its related maturity. The discount rates
applied represent the rate the market is willing to offer these
loans at arms-length.
Other financial liabilities
This category includes items such as sundry creditors which
are short-term by nature and the carrying amount is therefore
a reasonable estimate of fair value
Convertible preference shares
The closing share price of the convertible preference shares
on 30 June is used to calculate the fair value of these financial
liabilities.
Subordinated debt and other debt
The fair value of subordinated debt is calculated based on
quoted market prices, where applicable. For those debt issues
where quoted market prices were not available, a discounted
cash flow model using a yield curve appropriate to the
remaining maturity of the instrument is used.
42. Financial Instruments (continued)
Summary
The following table provides comparison of carrying and net
fair values for each item discussed above, where applicable:
Consolidated
Financial Assets
Cash and cash equivalents
Due from other financial institutions
Derivatives
Financial assets held for trading
Financial assets available for sale - debt securities
Financial assets available for sale - equity
investments
Financial assets held to maturity
Loans and other receivables - investment
Net loans and other receivables
Investments accounted for using the equity method
Other assets
Financial Liabilities
Due to other financial institutions
Deposits
Notes Payable
Derivatives
Other payables
Reset preference shares
Convertible preference shares
Subordinated debt
Carrying value
Net fair value
2013
$ m
383.8
293.9
31.9
2012
$ m
288.8
272.2
48.5
2013
$ m
383.8
293.9
31.9
2012
$ m
288.8
272.2
48.5
5,465.2
4,366.1
5,465.2
4,366.1
535.5
18.1
323.3
554.1
444.8
124.7
388.4
453.0
535.5
18.1
323.3
568.0
444.8
124.7
387.6
451.8
49,957.4
48,217.0
50,150.4
48,984.2
15.6
615.4
379.5
47,439.0
6,400.6
98.4
688.7
-
268.9
354.3
12.9
509.7
327.2
44,572.7
6,411.0
179.0
731.8
89.5
-
436.9
15.6
615.4
379.5
47,578.7
6,465.2
98.4
688.7
-
284.8
355.6
12.9
509.7
327.2
44,057.9
6,359.0
179.0
731.8
90.8
-
430.7
147
Annual Financial Report Period ending 30 June 2013 42. Financial Instruments (continued)
Parent
Financial Assets
Cash and cash equivalents
Due from other financial institutions
Derivatives
Financial assets held for trading
Financial assets available for sale - debt securities
Financial assets available for sale - equity
investments
Shares in controlled entities
Financial assets held to maturity
Loans and other receivables - investment
Net loans and other receivables
Amounts receivable from controlled entities
Investments accounted for using the equity method
Other assets
Financial Liabilities
Due to other financial institutions
Deposits
Notes Payable
Derivatives
Other payables
Loans payable to securitisation trusts
Reset preference shares
Convertible preference shares
Subordinated debt
Carrying value
Net fair value
2013
$ m
258.1
292.2
182.6
5,465.8
1,362.9
4.5
526.5
1.8
554.1
44,691.3
544.7
13.8
1,229.9
371.4
44,121.7
350.3
85.7
887.9
5,829.9
-
268.9
302.2
2012
$ m
175.8
266.3
547.3
4,367.0
1,594.6
4.1
604.1
1.8
453.0
41,366.6
1,090.8
10.7
837.4
315.1
40,179.4
-
111.2
1,168.0
6,294.1
89.5
-
361.1
2013
$ m
258.1
292.2
182.6
5,465.8
1,362.9
4.5
526.5
1.8
568.0
44,841.5
544.7
13.8
1,229.9
371.4
44,226.9
350.3
85.7
887.9
5,829.9
-
284.8
296.9
2012
$ m
175.8
266.3
547.3
4,367.0
1,594.6
4.1
604.1
1.8
451.8
42,027.9
1,090.8
10.7
834.9
315.1
39,686.9
-
111.2
1,168.0
6,294.1
90.8
-
354.9
148
42. Financial Instruments (continued)
Interest rate risk
The Group's exposure to interest rate risks of financial
assets and liabilities at the balance date are disclosed in the
following table.
Sensitivity to interest rates arises from mismatches in the
period to repricing of assets and liabilities. These mismatches
are managed as part of the overall asset and liability
management process
Consolidated
Fixed interest rate repricing
Floating
interest
Less than 3
months
Between 3
months & 6
months
Between 6
months &
12 months
Between
1 year & 5
years
After 5
years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
As at 30 June 2013
$ m
$ m
$ m
$ m
$ m
$ m
$ m
$ m
%
Assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held for trading
Financial assets available
for sale
Financial assets held to maturity
Loans and other receivables
Derivatives
Total financial assets
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
162.3
-
-
-
-
-
-
-
-
3,146.9
2,294.2
520.5
14.9
-
-
24.1
0.1
318.3
5.0
-
-
-
-
-
-
-
-
-
-
-
221.5
383.8
1.16
293.9
293.9
-
-
-
-
5,465.2
535.5
323.3
2.94
3.66
3.18
6.13
35,097.6
6,184.9
1,064.6
2,406.4
5,659.4
95.4
3.2
50,511.5
-
-
-
-
-
-
31.9
31.9
-
35,259.9
10,170.6
3,378.7
2,430.6
5,659.4
95.4
550.5
57,545.1
-
-
-
-
-
-
379.5
379.5
-
12,566.5
22,702.0
8,111.4
2,923.0
1,135.6
0.5
49.0
6,221.6
130.0
-
-
-
-
-
-
268.9
342.3
-
-
-
-
-
-
-
-
12.0
-
-
-
-
-
-
47,439.0
6,400.6
3.45
4.01
98.4
98.4
-
-
-
268.9
354.3
7.80
6.67
12,615.5
29,265.9
8,510.3
2,923.0
1,147.6
0.5
477.9
54,940.7
149
Annual Financial Report Period ending 30 June 2013
42. Financial Instruments (continued)
Interest rate risk (continued)
Consolidated
Fixed interest rate repricing
Floating
interest
Less than 3
months
Between 3
months & 6
months
Between 6
months &
12 months
Between
1 year & 5
years
After 5
years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
As at 30 June 2012
$ m
$ m
$ m
$ m
$ m
$ m
$ m
$ m
%
Assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held for trading
Financial assets available
for sale
Financial assets held to maturity
Loans and other receivables
Derivatives
122.7
-
-
-
-
-
-
-
-
-
-
2,072.0
2,244.4
49.7
-
-
-
444.7
-
-
0.1
350.0
38.2
0.2
-
-
-
-
-
-
166.1
288.8
272.2
272.2
-
-
-
4,366.1
444.8
388.4
34,482.0
5,297.0
1,125.9
2,682.9
4,927.9
184.8
(30.5)
48,670.0
1.38
-
4.07
4.50
3.83
6.94
-
-
-
-
-
-
48.5
48.5
-
Total financial assets
34,604.7
8,163.7
3,408.5
2,732.8
4,928.0
184.8
456.3
54,478.8
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Derivatives
Reset preference shares
Subordinated debt
Total financial liabilities
-
-
-
-
-
-
327.2
327.2
-
11,506.7
22,854.0
6,917.9
2,137.1
1,156.3
0.7
74.1
6,056.9
150.0
-
-
-
-
-
424.9
-
89.5
-
-
-
-
-
130.0
-
-
12.0
-
-
-
-
-
-
44,572.7
6,411.0
4.38
4.86
179.0
179.0
-
-
-
89.5
436.9
6.16
7.10
11,580.8
29,335.8
7,157.4
2,137.1
1,298.3
0.7
506.2
52,016.3
150
42. Financial Instruments (continued)
Interest rate risk (continued)
Parent
Fixed interest rate repricing
Floating
interest
Less than 3
months
Between 3
months & 6
months
Between 6
months &
12 months
Between
1 year & 5
years
After 5
years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
As at 30 June 2013
$ m
$ m
$ m
$ m
$ m
$ m
$ m
$ m
%
Assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held for trading
Financial assets available
for sale
Financial assets held to maturity
Loans and other receivables
Derivatives
Total financial assets
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Loans payable to securitisation
trusts
Derivatives
Reset preference shares
Subordinated debt
Total financial liabilities
128.1
-
-
-
-
-
-
-
-
3,147.3
2,294.4
1,362.8
1.8
-
-
-
-
24.1
0.1
-
-
-
-
-
-
-
-
-
-
-
130.0
258.1
1.38
292.2
292.2
-
-
-
-
5,465.8
1,362.9
1.8
2.94
4.00
3.83
6.01
-
30,213.8
6,089.7
1,003.5
2,075.4
5,345.4
92.3
425.3
45,245.4
-
-
-
-
-
-
182.6
182.6
30,341.9
10,601.6
3,297.9
2,099.6
5,345.4
92.3
1,030.1
52,808.8
-
-
-
-
-
-
371.4
371.4
-
12,174.8
20,793.4
7,335.3
2,458.6
1,073.0
0.5
286.1
44,121.7
-
-
-
-
-
350.3
-
-
-
-
-
-
268.9
302.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
350.3
5,829.8
5,829.8
85.7
85.7
-
-
268.9
302.2
3.39
5.92
-
-
7.80
6.58
12,174.8
21,445.9
7,604.2
2,458.6
1,073.0
0.5
6,573.0
51,330.0
151
Annual Financial Report Period ending 30 June 2013
42. Financial Instruments (continued)
Interest rate risk (continued)
Parent
Fixed interest rate repricing
Floating
interest
Less than 3
months
Between 3
months & 6
months
Between 6
months &
12 months
Between
1 year & 5
years
After 5
years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
As at 30 June 2012
$ m
$ m
$ m
$ m
$ m
$ m
$ m
$ m
%
63.5
-
-
-
-
-
-
1.8
-
-
-
-
-
-
2,072.5
2,244.8
49.7
-
-
-
-
1,594.5
-
-
0.1
-
-
-
-
-
112.3
175.8
1.24
266.3
266.3
-
-
-
-
1.8
4,367.0
1,594.6
4.43
4.07
4.67
28,632.9
5,083.6
1,017.4
2,003.8
4,572.7
179.2
330.0
41,819.6
6.79
-
-
-
-
-
-
547.3
547.4
28,696.4
8,752.4
3,262.2
2,053.5
4,572.8
179.2
1,255.9
48,772.4
-
-
-
-
-
10,910.1
20,646.1
5,835.4
1,708.2
1,029.6
-
-
-
-
-
-
-
-
-
361.1
-
-
-
89.5
-
-
-
-
-
-
-
-
-
-
-
10,910.1
21,007.1
5,925.0
1,708.2
1,029.6
-
-
-
-
-
-
-
-
315.1
315.1
50.0
40,179.4
4.29
-
-
6,294.1
6,294.1
111.2
111.2
-
-
-
-
-
89.5
361.1
6.16
6.98
6,770.4
47,350.4
-
-
Assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available
for sale
Loans and other receivables
Derivatives
Total financial assets
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Loans payable to securitisation
trusts
Derivatives
Reset preference shares
Subordinated debt
Total financial liabilities
152
42. Financial Instruments (continued)
Fair Value Financial Instruments
The Group uses various methods in estimating the fair value
of financial instrument. The methods comprise of
> Level 1 - The fair value is calculated using quoted
prices in active markets.
> Level 2 - The fair value is estimated using inputs
other than quoted prices included in Level 1 that
are observable for the asset or liability, either
directly or indirectly (derived from prices).
> Level 3 - The fair value is estimated using inputs
for the asset or liability that are not based on
observable market data.
The fair value of the financial instruments as well as the
methods used to estimate the fair value are summarised in
the table below.
Consolidated
As at June 2013
Financial assets
Financial assets - held for trading
Financial assets - available for sale
Derivative instruments
Listed investments
Unlisted equity investments
Financial liabilities
Derivative instruments
As at June 2012
Financial assets
Financial assets - held for trading
Financial assets - available for sale
Derivative instruments
Listed investments
Unlisted equity investments
Financial liabilities
Derivative instruments
Quoted market price
Valuation technique -
market observable inputs
Valuation technique - non
market observable inputs
Level 1
$ m
-
-
-
1.4
-
1.4
-
-
Level 2
$ m
5,465.2
535.5
31.9
-
-
6,032.6
98.4
98.4
Level 3
$ m
-
-
-
-
16.7
16.7
-
-
Quoted market price
Valuation technique -
market observable inputs
Valuation technique - non
market observable inputs
Level 1
$ m
-
-
-
109.5
-
109.5
-
-
Level 2
$ m
4,366.1
444.8
48.5
-
-
4,859.4
179.0
179.0
Level 3
$ m
-
-
-
-
15.2
15.2
-
-
Total
$ m
5,465.2
535.5
31.9
1.4
16.7
6,050.7
98.4
98.4
Total
$ m
4,366.1
444.8
48.5
109.5
15.2
4,984.1
153
179.0
179.0
Annual Financial Report Period ending 30 June 2013 42. Financial Instruments (continued)
Parent
Quoted market price
Valuation technique -
market observable inputs
Valuation technique - non
market observable inputs
As at June 2013
Financial assets
Financial assets - held for trading
Financial assets - available for sale
Derivative instruments
Listed equity investments
Unlisted equity investments
Financial liabilities
Derivative instruments
As at June 2012
Financial assets
Financial assets - held for trading
Financial assets - available for sale
Derivative instruments
Listed equity investments
Unlisted equity investments
Financial liabilities
Derivative instruments
Level 1
$ m
-
-
-
1.4
-
1.4
-
-
Level 2
$ m
5,465.8
426.0
182.6
-
-
6,074.4
85.7
85.7
Level 3
$ m
-
-
-
-
3.1
3.1
-
-
Quoted market price
Valuation technique -
market observable inputs
Valuation technique - non
market observable inputs
Level 1
$ m
-
-
-
1.4
-
1.4
-
-
Level 2
$ m
4,367.0
352.1
547.3
-
-
5,266.4
111.2
111.2
Level 3
$ m
-
-
-
-
2.7
2.7
-
-
Total
$ m
5,465.8
426.0
182.6
1.4
3.1
6,078.9
85.7
85.7
Total
$ m
4,367.0
352.1
547.3
1.4
2.7
5,270.5
111.2
111.2
154
The Fair Value of Held for Trading and Available for Sale
financial assets process is as follows.
Each month market security investment valuations are
determined by the Middle Office department of the Group’s
Finance and Treasury Division. This involves an analysis of
market rate sheets provided by institutions independent of
Bendigo and Adelaide Bank. From these independent rate
sheets, market average valuations are calculated within the
Group’s Treasury Management System, thereby updating the
value of investments. Depending on the valuation movement,
the company will report a profit or loss for the period.
Listed Investments relates to equity held that are on listed
exchanges. Unlisted Equity Investments relates to equity
holdings in entities that are traded in an illiquid market or are
thinly traded.
42. Financial Instruments (continued)
Reconciliation of level 3 fair value movements
Consolidated
As at June 2013
Fair value assets
Unlisted equity investments
Total fair value assets
As at June 2012
Fair value assets
Unlisted equity investments
Total fair value assets
Parent
As at June 2013
Fair value assets
Unlisted equity investments
Total fair value assets
As at June 2012
Fair value assets
Unlisted equity investments
Total fair value assets
As at 30 June
2012
Gains/losses
in equity
Purchases
$ m
15.2
15.2
$ m
1.1
1.1
$ m
0.5
0.5
As at 30 June
2011
Gains/losses
in equity
Purchases
$ m
3.7
3.7
As at 30 June 2012
$ m
2.7
2.7
$ m
0.2
0.2
Gains/losses
in equity
$ m
-
-
$ m
11.3
11.3
Purchases
$ m
0.5
0.5
As at 30 June
2011
Gains/losses
in equity
Purchases
$ m
2.2
2.2
$ m
(0.2)
(0.2)
$ m
0.7
0.7
There were no transfers between level 1 and level 2 during
the year.
Sales
$ m
(0.1)
(0.1)
Sales
$ m
-
-
Sales
$ m
(0.1)
(0.1)
Sales
$ m
-
-
As at 30 June
2013
$ m
16.7
16.7
As at 30 June
2012
$ m
15.2
15.2
As at 30 June
2013
$ m
3.1
3.1
As at 30 June
2012
$ m
2.7
2.7
155
Annual Financial Report Period ending 30 June 2013 43. Derivative Financial Instruments
The Group uses derivatives primarily to hedge banking
operations and for asset and liability management. Some
derivatives transactions may qualify as either cash flow or fair
value hedges. The accounting treatment of these hedges is
outlined in Note 2.32 Derivative Financial Instruments.
The Group is exposed to volatility in interest cash flows
inherent in its loan portfolio and that of the securitisation
vehicles. Interest rate swaps are used to hedge the risk that
this volatility creates.
During the 2013 financial year the consolidated entity
recognised a loss of $1.8 million (2012: a loss of $12.6
million) due to hedge ineffectiveness.
Consolidated 2013
Consolidated 2012
Notional
Amount
Asset
Revaluation
Liability
Revaluation
Net Fair
Value
Notional
Amount
Asset
Revaluation
Liability
Revaluation
Net Fair
Value
Value of derivatives as at 30 June
$ m
$ m
$ m
$ m
$ m
$ m
$ m
$ m
Included in derivatives category
Derivatives held for trading
Futures
Forward Rate Agreements
Interest Rate Swaps
Foreign Exchange
Contracts
Derivatives
Derivatives held as fair value hedges
Interest Rate Swaps
Embedded Derivatives
Derivatives
Derivatives held as cash flow hedges
Cross Currency
Swaps
Interest Rate Swaps
Derivatives
500.0
-
0.4
-
-
-
0.4
-
-
1,200.0
-
-
-
(1.6)
1,300.0
16.0
(15.9)
0.1
2,708.8
21.2
(24.9)
95.3
1,895.3
0.6
17.0
(0.6)
(16.5)
-
73.1
0.5
3,981.9
0.5
21.7
(0.7)
(27.2)
57.1
0.4
57.5
-
-
-
(3.6)
(3.6)
-
-
(3.6)
(3.6)
59.2
1.0
60.2
-
0.2
0.2
(4.4)
(0.2)
(4.6)
-
(1.6)
(3.7)
(0.2)
(5.5)
(4.4)
-
(4.4)
241.7
14,393.8
14,635.5
1.1
13.8
14.9
(22.8)
(55.5)
(78.3)
(21.7)
386.9
(41.7)
19,128.9
(63.4)
19,515.8
11.3
15.3
26.6
(58.4)
(88.8)
(47.1)
(73.5)
(147.2)
(120.6)
Total derivatives
16,588.3
31.9
(98.4)
(66.5)
23,557.9
48.5
(179.0)
(130.5)
156
43. Derivative Financial Instruments
(continued)
Parent 2013
Parent 2012
Notional
Amount
Asset
Revaluation
Liability
Revaluation
Net Fair
Value
Notional
Amount
Asset
Revaluation
Liability
Revaluation
Net Fair
Value
Value of derivatives as at 30 June
$ m
$ m
$ m
$ m
$ m
$ m
$ m
$ m
Included in derivatives category
Derivatives held for trading
Futures
Forward Rate Agreements
Interest Rate Swaps
Foreign Exchange
Contracts
Derivatives
Derivatives held as fair value hedges
Interest Rate Swaps
Derivatives
Derivatives held as cash flow hedges
Interest Rate Swaps
Derivatives
500.0
-
0.4
-
-
-
0.4
-
-
1,200.0
-
-
-
-
(1.6)
(1.6)
10,124.6
170.0
(31.5)
138.5
14,508.8
537.1
(24.9)
512.2
95.3
0.6
(0.6)
-
73.1
0.5
(0.7)
(0.2)
10,719.9
171.0
(32.1)
138.9
15,781.9
537.6
(27.2)
510.4
57.1
57.1
-
-
(3.6)
(3.6)
(3.6)
(3.6)
59.2
59.2
-
-
(4.4)
(4.4)
(4.4)
(4.4)
13,996.0
13,996.0
11.6
11.6
(50.0)
(50.0)
(38.4)
18,520.6
(38.4)
18,520.6
9.7
9.7
(79.6)
(79.6)
(69.9)
(69.9)
Total derivatives
24,773.0
182.6
(85.7)
96.9
34,361.7
547.3
(111.2)
436.1
157
Annual Financial Report Period ending 30 June 2013 43. Derivative Financial Instruments
(continued)
As at 30 June hedged cash flows are expected to occur and
affect the income statement as follows:
Consolidated
2013
Cash inflows (Assets)
Cash outflows (Liabilities)
Net cash inflow
Income statement
2012
Cash inflows (Assets)
Cash outflows (Liabilities)
Net cash inflow
Income statement
Parent
2013
Cash inflows (Assets)
Cash outflows (Liabilities)
Net cash inflow
Income statement
2012
Cash inflows (Assets)
Cash outflows (Liabilities)
Net cash inflow
Income statement
Within 1 year
$ m
323.0
(329.4)
(6.4)
(18.5)
351.2
(372.4)
(21.2)
(51.1)
Within 1 year
$ m
231.6
(234.7)
(3.1)
(15.4)
254.4
(271.7)
(17.3)
(38.4)
1 to 3 years
$ m
326.2
(340.7)
(14.5)
(29.8)
247.7
(337.8)
(90.1)
(47.8)
1 to 3 years
$ m
124.5
(167.6)
(43.1)
(19.1)
56.3
(130.8)
(74.5)
(29.5)
3 to 8 years
$ m
41.8
(50.8)
(9.0)
(6.1)
187.8
(209.1)
(21.3)
(9.0)
3 to 8 years
$ m
41.4
(49.7)
(8.3)
(4.4)
39.7
(58.5)
(18.8)
(6.5)
Net gain on cash flow hedges reclassified to the income
statement:
Interest income
Interest expense
Other operating expenses
158
Taxation
Net gain on cash flow hedges reclassified
to the income statement
Consolidated
Parent
2013
$ m
4.8
(7.3)
0.7
(1.8)
0.5
(1.3)
2012
$ m
5.6
(18.0)
(0.6)
(13.0)
3.9
(9.1)
2013
$ m
-
(7.3)
0.7
(6.6)
2.0
(4.6)
During 2013 the Group recognised a $0.1 million gain on
fair value hedges (2012: $0.8 million gain), due to hedge
ineffectiveness. For hedges that are marked to market and not
in a hedge relationship, a gain of $0.5 million (2012: loss of
$1.2 million) has been recognised.
Over 8 years
$ m
28.6
(28.7)
(0.1)
(0.1)
36.1
(36.4)
(0.3)
(0.1)
Over 8 years
$ m
28.6
(28.7)
(0.1)
(0.1)
36.1
(36.4)
(0.3)
(0.1)
2012
$ m
2.9
(16.1)
(0.6)
(13.8)
4.1
(9.7)
44. Commitments and Contingencies
(a) Commitments
The following are outstanding expenditure and credit related
commitments as at 30 June 2013. Except where specified, all
commitments are payable within one year.
Operating lease commitments - Group as lessee
The Group has entered into commercial property leases and
commercial leases on certain motor vehicles and items of
office equipment.
These leases have an average life of between three and seven
years. Some property leases include optional renewal periods
included in the contracts. There are no restrictions placed
upon the lessee by entering into these leases. The head office
development has a lease term of 17 years remaining.
Consolidated
Parent
2013
$ m
2012
$ m
2013
$ m
2012
$ m
Future minimum rentals
payable under non-cancellable
operating leases as at 30 June
Not later than 1 year
58.3
62.1
58.2
60.0
Later than 1 year but not later
than 5 years
149.6
137.4
149.6
131.8
Later than 5 years
185.6
199.5
185.6
196.4
393.5
399.0
393.4
388.2
Operating lease commitments - group as lessor
The Group has entered into commercial property leases on the
Group's surplus office space. These non-cancellable leases
have remaining terms of between two and five years. All leases
have a clause to enable upward revision of the rental charge
on a regular basis according to prevailing market conditions.
Future minimum rentals
payable under non-cancellable
operating leases as at 30 June
Not later than 1 year
Later than 1 year but not later
than 5 years
1.2
1.3
1.6
2.3
1.2
1.3
1.6
2.3
2.5
3.9
2.5
3.9
Consolidated
Parent
2013
2012
2013
2012
$ m
4.6
$ m
4.1
$ m
4.6
$ m
4.0
1,219.1
869.3
1,201.2
817.2
10,871.2 10,700.8
9,887.4
9,613.5
4,255.2
3,742.5
4,011.4
3,501.9
Other expenditure
commitments
Sponsorship commitments
not paid as at balance date,
payable not later than one year
Credit related commitments
Gross loans approved, but not
advanced to borrowers
Credit limits granted to clients
for overdrafts and credit cards
Total amount of facilities
provided
Amount undrawn at balance
date
Normal commercial restrictions apply as to use and withdrawal
of the facilities.
(b) Superannuation Commitments
The Bendigo and Adelaide Bank Group has a legally enforceable
obligation to contribute to a superannuation plan for employees
either on an accumulation basis (including the Superannuation
Guarantee Charge) or on a defined benefits basis (Adelaide
Bank staff superannuation plan) which provides benefits on
retirement, disability or death based on years of service and
final average salary. Employees contribute to the plan at a fixed
percentage of remuneration.
The Group’s contribution to the defined benefit plan is
determined by the Trustee after consideration of actuarial
advice. At balance date, the Directors believe that funds
available were adequate to satisfy all vested benefits under
the Plan.
Accounting Policy
Actuarial gains and losses are recognised in retained
earnings.
Plan Information
Defined benefit members receive lump sum benefits on
retirement, death, disablement and withdrawal. The defined
benefit section of the Plan is closed to new members. All
new members are entitled to become members of the
accumulation categories of the fund.
Fair Value of Plan Assets
The fair value of Plan assets includes Bendigo and Adelaide
Bank shares to the value of $1.4 million as at 30 June 2013.
159
Annual Financial Report Period ending 30 June 2013
44. Commitments and Contingencies
(continued)
Actual Return
Actual return on Plan assets
Principal Actuarial Assumptions
Discount rate
Expected salary increase rate
Expected rate of return on Plan assets
^ Not required due to change in standard
Reconciliation of the Present Value of the Defined Benefit Obligation
Present value of defined benefit obligations at beginning of period
Add Current service cost
Add Interest cost
Add contributions by plan participants
Add Actuarial gains/(losses)
Less Benefits paid
Less Taxes, premiums and expenses paid
Add Transfers in
Less Contributions to accumulation section
Present value of defined benefit obligations at end of the year
Reconciliation of the Fair Value of Plan Assets
Fair value of Plan assets at beginning of period
Add Expected return on plan assets
Add Actuarial gains/(losses)
Add Employer contributions
Add Contributions by plan participants
Less Benefits paid
Less Taxes, premiums and expenses paid
Add Transfers in
Less Contributions to accumulation section
Fair value of Plan assets at end of the year
160
Consolidated 2013
$ m
Consolidated 2012
$ m
1.8
(0.1)
3.2% pa
3.0% pa
- ^ pa
$ m
8.0
0.3
0.2
0.1
(1.1)
0.3
0.1
-
-
7.1
8.9
0.6
1.2
0.2
0.1
0.3
0.1
-
-
10.6
2.6% pa
3.5% pa
7.0% pa
$ m
7.0
0.3
0.3
0.1
0.9
0.6
-
-
-
8.0
9.4
0.7
(0.8)
0.1
0.1
0.6
-
-
-
8.9
44. Commitments and Contingencies
(continued)
Reconciliation of the Assets and Liabilities Recognised in the Balance Sheet
Consolidated 2013
$ m
Consolidated 2012
$ m
Defined Benefit Obligation ^
Less Fair value of Plan assets
(Surplus)
Net superannuation (asset) / liability
^ includes contributions tax provision
Movements in Liability / (Asset) Recognised in the Balance Sheet
Net superannuation (asset) at beginning of period
Add Amount recognised in other comprehensive income
Add Expense/(income) recognised in the P&L
Less Employer contributions
Net superannuation (asset) at 30 June
Expense Recognised in Income Statement
Service cost
Interest cost
Expected return on assets
Superannuation expense
Amount recognised directly in Other Comprehensive Income
Actuarial (gain) / loss
Cumulative amount recognised directly in Other Comprehensive Income
Actuarial (gain) / loss
Plan Assets
The percentage invested in each asset class at the balance
sheet date:
Australian Equity
International Equity
Fixed Income
Property
Alternatives
Cash
7.1
10.6
(3.5)
(3.5)
(0.9)
(2.3)
(0.1)
0.2
(3.5)
0.3
0.2
(0.6)
(0.1)
(2.3)
4.3
8.0
8.9
(0.9)
(0.9)
(2.4)
1.8
(0.1)
0.2
(0.9)
0.3
0.3
(0.7)
(0.1)
1.8
6.6
Consolidated 2013
$ m
Consolidated 2012
$ m
34%
29%
16%
10%
5%
6%
37%
24%
15%
14%
4%
6%
161
Annual Financial Report Period ending 30 June 2013 44. Commitments and Contingencies
(continued)
Contribution Recommendations
The financial position of the defined benefits is reviewed
regularly by the Bank, at least annually, to ensure that the
contribution amount remains appropriate.
Funding Method
The method used to determine the employer contribution
recommendations is the Attained Age Normal method. The
method adopted affects the timing of the cost to the Bank.
Under the Attained Age Normal method, a “normal cost” is
calculated which is the estimated employer contribution rate
required to provide benefits in respect of future service after
the review date. The “normal” cost is then adjusted to take
into account any surplus (or deficiency) of assets over the
value of liabilities in respect of service prior to the review date.
Any surplus or deficiency can be used to reduce or increase
the “normal” employer contribution rate over a suitable period
of time.
Economic Assumptions
The long-term economic assumptions adopted are:
Expected salary increase rate
3.0% pa
Nature of Asset
Bendigo and Adelaide Bank has recognised an asset in the
Balance Sheet (under other assets) in respect of its defined
benefit superannuation arrangements. If a surplus exists in
the Plan, Bendigo and Adelaide Bank may be able to take
advantage of it in the form of a reduction in the required
contribution rate, depending on the advice of the Plan’s
actuary.
The Bendigo and Adelaide Bank Staff Superannuation Plan,
a sub-plan of the Spectrum Super, does not impose a legal
liability on Bendigo and Adelaide Bank to cover any deficit that
exists in the Plan. If the Plan were wound up, there would be
no legal obligation on the Bank to make good any shortfall.
The rules of the Plan state that if the Plan winds up, the
remaining assets are to be distributed amongst the Members
as determined by the Trustee of the Plan.
The Bank may at any time terminate its contributions by giving
one month’s notice in writing to the Trustee.
Historical Information
Present value of defined benefit obligation
Fair value of Plan assets
(Surplus) / deficit in Plan
162
Experience adjustments (gain)/loss - Plan assets
Experience adjustments (gain)/loss - Plan liabilities
Expected Contributions
Financial year ending
Expected employer contributions
2013
$ m
2012
$ m
7.1
8.0
10.6
(3.5)
(1.2)
(0.3)
8.9
(0.9)
0.8
(0.2)
2014
$ m
0.2
(c) Legal claim
From time to time, Bendigo and Adelaide Bank may be subject
to material litigation, regulatory actions, legal or arbitration
proceedings and other contingent liabilities which, if they
crystallise, may adversely affect the financial position or
financial performance of the Bank.
A specific litigation risk exists in relation to the Bank’s Great
Southern loan portfolio. A law firm commenced a number of
group legal proceedings involving the Bank and other parties
on behalf of investors in relation to managed investment
schemes managed by Great Southern Managers Australia Ltd
(Group Proceedings). The Great Southern Group of companies
is now in liquidation.
The Bank either acquired or advanced loans to investors in the
managed investment schemes. Not all borrowers are members
of the Group Proceedings as the Group Proceedings relate to
specific schemes and categories of borrowers.
While no wrongdoing is alleged against the Bank and the
Bank is vigorously defending the Group Proceedings, the law
firm is seeking to have the loan deeds of those borrowers
who are members of the Group Proceedings deemed void
or unenforceable and for all money paid under those loans
(including principal, any interest and fees) to be repaid to
borrowers. The litigation will continue to be assessed and
managed on an ongoing basis.
Bendigo and Adelaide Bank has raised provisions and in some
cases made write-offs in relation to the Great Southern loan
portfolio, having regard to the performance of the portfolio
and other relevant factors. However the provisions and write-
offs are small in the context of the potential loss should the
proceedings succeed.
(d) Contingent liabilities and contingent assets
Consolidated
Parent
2013
$ m
2012
$ m
2013
$ m
2012
$ m
217.0
221.2
212.0
208.8
15.9
14.7
15.8
14.6
Contingent liabilities
Guarantees
The economic entity has
issued guarantees on behalf
of clients
Other
Documentary letters of
credit & performance related
obligations
As the probability and value of guarantees, letters of credit
and performance related obligations that may be called on
is unpredictable, it is not practical to state the timing of any
potential payment.
Contingent assets
As at 30 June 2013, the economic entity does not have any
contingent assets.
45. Standby Arrangements and
Uncommitted Credit Facilities
Consolidated
Parent
2013
$ m
2012
$ m
2013
$ m
2012
$ m
Amount available:
Offshore borrowing facility
8,755.0
7,814.0
8,755.0
7,814.0
Domestic note program
5,750.0
5,750.0
5,000.0
5,000.0
Amount utilised:
Offshore borrowing facility
266.0
77.3
266.0
77.3
Domestic note program
1,731.0
566.9
1,678.0
490.5
Amount not utilised:
Offshore borrowing facility
8,489.0
7,736.7
8,489.0
7,736.7
Domestic note program
4,019.0
5,183.1
3,322.0
4,509.5
The Parent has a $US 5,000 million Euro Commercial Paper
program of which $US 243 million (2012: $US 79.1 million)
was drawn down as at 30 June 2013, and a $US 3,000
million Euro Medium Term Note program of which there were
no draw downs (2012: EURO nil). As at 30 June 2013 the
Parent has a $5,000 million Domestic Note program of which
$ 1,678 million (2012: $490.5 million) was issued and the
consolidated group has an additional $750.0 million Domestic
Note program through its subsidiary Rural Bank Limited, of
which $53 million (2012: $76.4 million) was issued.
46. Fiduciary Activities
The Group conducts investment management and other
fiduciary activities as trustee, custodian or manager for
a number of funds and trusts, including superannuation,
unit trusts and mortgage pools. The amounts of the funds
concerned, which are not included in the Group's statement of
financial position is as follows:
Funds under trusteeship
Assets under management
Funds under management
Consolidated
2013
$ m
2012
$ m
3,491.1
2,733.0
1,665.3
1,789.2
1,609.9
1,300.7
As an obligation arises under each type of duty the amount
of funds has been included where that duty arises. This may
lead to the same funds being shown more than once where
the Group acts in more than one capacity in relation to those
funds e.g. manager and trustee. Where controlled entities, as
trustees, custodian or manager incur liabilities in the normal
course of their duties, a right of indemnity exists against
the assets of the applicable trusts. As these assets are
sufficient to cover liabilities, and it is therefore not probable
that the Group companies will be required to settle them, the
liabilities are not included in the financial statements. Bendigo
and Adelaide Bank does not guarantee the performance or
obligations of its subsidiaries.
47. Securitisation and Transferred Assets
Transfer of financial assets
In the normal course of business the Group enters into
transactions by which it transfers financial assets to
counterparties or directly to Special Purpose Entities (SPEs).
These transfers do not give rise to de-recognition of those
financial assets for the Group.
Repurchase agreements
Securities sold under agreement to repurchase are retained
on the balance sheet when substantially all the risks and
rewards of ownership remain with the Group, and the
counterparty liability is included separately on the balance
sheet when cash consideration is received.
Securitisation programs
The Group through its loan securitisation program, securities
mortgage loans to the Torrens Trust and Lighthouse Trusts
(the trusts) which in turn issue rated securities to the investors.
The Bank holds income and capital units in the trust at
nominal values, which entitles the bank to receive excess
income, if any, generated by securitised assets, while the
capital units receive upon termination of the trusts any
residual capital value. Investors in the trusts have no recourse
against the Group if cash flows from the securitised loans are
inadequate to service the obligations of the trusts.
Consolidated
Carrying amount of transferred
assets 1
Carrying amount of associated
liabilities 2
Fair value of transferred
assets
Fair value of associated
liabilities
Net Position
Parent
Carrying amount of transferred
assets
Carrying amount of associated
liabilities 3
Fair value of transferred
assets
Fair value of associated
liabilities
Net Position
Repurchase
Agreements
Securitisation
2013
$ m
350.3
2012
$ m
2013
$ m
2012
$ m
-
5,806.4
6,271.7
350.3
-
6,015.0
6,338.4
5,829.0
6,310.1
6,079.6
6,286.4
(250.6)
23.7
Repurchase
Agreements
Securitisation
2013
$ m
350.3
2012
$ m
2013
$ m
2012
$ m
- 11,379.7 11,528.5
350.3
- 11,862.1 11,858.3
11,418.6 11,599.1
11,926.7 11,806.3
(508.1)
(207.2)
163
1 Represents the carrying value of the loans transferred to the trust.
2 Securitisation liabilities of the Group include RMBS notes issued by the SPE's
and held by external parties.
3 Securitisation liabilities of the Bank include borrowings from SPE's including
the SPE's that issue internally held notes for repurchase with central banks,
recognised on transfer of residential mortgages by the Bank.
Annual Financial Report Period ending 30 June 2013
48. Business Combinations
Below are the material business combinations for the year
ended 30 June 2013.
Southern Finance
On 21 December 2012 Bendigo and Adelaide Bank Group
acquired the loan, leases and other assets of Southern
Finance Ltd. The Group also acquired the business activities
and personnel of Southern Financial Planning. The Group
did not acquire any of Southern Finance’s legal entities. The
consideration for the acquisition of assets was the Group’s
assumption of Southern Finance’s outstanding deposits
and payment of employee entitlements to Southern Finance
employees. Bendigo and Adelaide Bank will repay monies to
Southern depositors as their deposits fall due. Upon maturity
amounts outstanding to Southern depositors may also be
converted into Bendigo and Adelaide Bank deposits.
Southern Finance Ltd is a finance company based in
Warrnambool with offices in Victoria and South Australia. Its
business operations include the provision of loan and lease
finance, the raising of deposits and the provision of financial
planning services.
The following table shows the effect on the Group's assets:
Pre-acquisition
carrying amount
Recognised values
on acquisition
Assets
Cash and cash equivalents
Loans
Leases
Investment properties
Motor vehicles and office
equipment
Intangibles - client list
Total Assets
Net identifiable assets
attributable to Bendigo and
Adelaide Bank Limited
Cost of acquisition
Fair value of net assets acquired
Final goodwill on acquisition
$ m
31.2
219.5
23.4
13.2
0.4
1.3
289.0
289.0
$ m
31.2
216.3
23.3
12.5
0.4
1.3
285.0
285.0
287.3
285.0
2.3
164
Had the acquisition occurred at the beginning of the reporting
period, the consolidated financial statement of comprehensive
income would have included additional revenue of $4 million
and net profit before tax of $0.5 million.
Community Telco Australia Pty Ltd
On 1 December 2012 Bendigo and Adelaide Bank Group
acquired an additional 50 percent of shares in Community
Telco Australia Pty Ltd, increasing the Group’s holding to
100 percent. The acquisition of the additional share holding
resulted in the Group gaining effective control, and the
requirement to consolidate the joint venture. Total number
of shares held in Community Telco Australia Pty Ltd is
14,500,560 for the cash consideration of $500,000 and debt
forgiveness of $8.4 million.
The principal activities of Community Telco Australia Pty Ltd are to
provide a wide range of telecommunication services.
The following table shows the effect on the Group's assets
and liabilities:
Pre-acquisition
carrying amount
Recognised values
on acquisition
Assets
Receivables
Intangible assets
Fixed assets
Deferred tax asset
Total Assets
Liabilities
Bank account overdraft
Other liabilities
Deferred tax liability
Total Liabilities
Net identifiable assets
attributable to Bendigo and
Adelaide Bank Limited
Cost of acquisition
Fair value of net assets acquired
Final goodwill on acquisition
$ m
5.8
0.7
0.4
-
6.9
3.2
6.7
-
9.9
(3.0)
$ m
5.8
0.7
0.4
0.2
7.1
3.2
6.7
0.3
10.2
(3.1)
8.9
(3.1)
12.0
The consolidated statement of comprehensive income
includes revenue of $3.8 million and profit before tax of
$0.1 million for the seven months to June 2013. Had the
acquisition occurred at the beginning of the reporting period,
the consolidated financial statement of comprehensive income
would have included revenue of $6.5 million and net profit
before tax of $0.1 million.
Goodwill
Goodwill arose in the business combination as the
consideration paid for the combination effectively included
amounts in relation to the skills and talent of the acquired
business workforce, the benefit of expected head office and
operational synergies, revenue growth and future market
development. These benefits are not recognised separately
from goodwill as the future economic benefits arising from
them cannot be measured reliably or they are not capable
of being separated from the Group and sold, transferred,
licensed, rented or exchanged either individually or together
with any related contracts.
49. Events After Balance Sheet Date
No other matters or circumstances have arisen since the
end of the financial year which significantly affected or may
significantly affect the operations of the economic entity,
the results of those operations, or the state of affairs of the
economic entity in subsequent financial years.
Directors’ Declaration
In accordance with a resolution of the directors of Bendigo and Adelaide Bank Limited, we state that:
In the opinion of the directors:
(a)
the financial statements and notes of the Company and the Bendigo and Adelaide Bank Group are in
accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Company's and the Bendigo and Adelaide Bank Group’s financial
position as at 30 June 2013 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and Corporations Regulations 2001; and
the financial statements and notes also comply with International Financial Reporting Standards as disclosed
in note 2.2
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable
this declaration has been made after receiving the declarations required to be made to the directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2013.
(b)
(c)
(d)
On behalf of the Board
Robert Johanson
Chairman
3 September 2013
Mike Hirst
Managing Director
165
Annual Financial Report Period ending 30 June 2013
166
167
Annual Financial Report Period ending 30 June 2013 6. Marketable parcel
Based on the closing price of $10.84 on 15 August 2013 the
number of holders with less than a marketable parcel of the
Company’s main class of securities (Ordinary Shares), as at
15 August 2013 was 6,562.
7. Unquoted securities
The number of unquoted equity securities that are on issue
and the number of holders of those securities are shown in the
above table under the heading of Fully Paid Employee shares.
Additional information
1. Material Differences
There are no material differences between the information
supplied in this report and the information in the preliminary
final report supplied by Bendigo and Adelaide Bank Limited to
the Australian Securities Exchange on 19 August 2013.
2. Audit Committee
As at the date of the Directors' Report the Group had an Audit
Committee of the Board of Directors.
3. Corporate governance practices
The corporate governance practices adopted by Bendigo
and Adelaide Bank Limited are as detailed in the Corporate
Governance section of this report.
4. Substantial shareholders
As at 15 August 2013 there were no substantial shareholders
in Bendigo and Adelaide Bank Limited as detailed in
substantial holdings notices given to the company.
5. Distribution of shareholders
Range of Securities as at 15 August 2013 in the following
categories:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of Holders
Securities on Issue
Fully Paid
Ordinary Shares
Fully Paid
Employee Shares
BPS
Preference Shares
Convertible
Preference Shares
Step Up
Preference Shares
37,065
35,918
7,057
3,722
109
83,871
407,228,173
3,224
690
58
12
2
3,986
4,779,691
3,071
66
2
6
-
3,145
900,000
5,063
279
25
13
1
2,950
86
9
6
-
5,381
2,688,703
3,051
1,000,000
168
8. Major shareholders
Names of the 20 largest holders of Fully Paid Ordinary shares,
including the number of shares each holds and the percentage
of capital that number represents as at 15 August 2013 are:
Rank
Name
Number of fully paid
Ordinary Shares
Percentage held of Issued
Ordinary Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
JP Morgan Nominees Australia Limited
BNP Paribas Noms Pty Ltd
Milton Corporation Limited
AMP Life Limited
Neweconomy Com Au Nominees Pty Limited <900 Account>
QIC Limited
HSBC Custody Nominees (Australia) Limited
UBS Wealth Management Australia Nominees Pty Ltd
Carlton Hotel Limited
Citicorp Nominees Pty Limited
CS Fourth Nominees Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
Navigator Australia Ltd
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 3
BBS Nominees Pty Ltd, trustee for the Bendigo and Adelaide
Employee Share Plan and Tasmanian Perpetual Trustees
Limited, trustee for the Employee Share Grant Scheme, held a
combined total of 4,779,691 unquoted shares as at the date of
this report. These shares have not been included in the above
table, but are included in total of issued ordinary share capital.
52,866,428
39,622,735
28,675,198
12,551,381
6,142,267
5,906,034
5,709,708
2,428,730
2,275,154
1,824,503
1,774,566
1,109,575
1,070,455
1,047,536
1,037,301
878,479
874,000
833,666
650,286
636,983
12.83%
9.62%
6.96%
3.05%
1.49%
1.43%
1.39%
0.59%
0.53%
0.44%
0.43%
0.27%
0.26%
0.25%
0.25%
0.21%
0.21%
0.20%
0.16%
0.15%
167,914,985
40.74%
Names of the 20 largest holders of Bendigo and Adelaide
Preference shares, including the number of shares each holds
and the percentage of preference share capital that number
represents as at 15 August 2013 are:
Rank
Name
Number of fully paid
Preference Shares
Percentage held of Issued
Preference Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
JP Morgan Nominees Australia Limited
RBC Investor Service Australia Nominees Pty Limited
Citicorp Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Ms Jillian Rosemary Broadbent
Dylac Pty Ltd
Mr Robert Maxwell Hill
Royal Queensland Bush Children's Health Scheme
The Trustees of the Diocese of Tasmania
Mr Jeffrey Frederick Edwards & Mrs June Rose Edwards
Mr John Henry Brunner
J & S Mckinnon Foundation Pty Ltd
World Wide Fund For Nature Australia
Carbon Max Pty Ltd
Green Super Pty Ltd
James Bostock & Henry Taylor & RSL Custodian Pty Ltd
The Friends School D/F Inc
62,837
44,401
44,338
25,454
24,675
12,048
7,744
5,917
4,000
3,951
3,000
3,000
2,794
2,778
2,674
2,660
2,575
2,531
2,474
2,325
6.98%
4.93%
4.93%
2.83%
2.74%
1.34%
0.86%
0.66%
0.44%
0.44%
0.33%
0.33%
0.31%
0.31%
0.30%
0.30%
0.29%
0.28%
0.27%
0.26%
169
262,176
29.13%
Annual Financial Report Period ending 30 June 2013 Names of the 20 largest holders of Bendigo and Adelaide
Convertible Preference shares, including the number of shares
each holds and the percentage of convertible preference share
capital that number represents as at 15 August 2013 are:
Rank
Name
Number of fully paid
Convertible Preference Shares
Percentage held of Issued
Convertible Preference Shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
Northern Metropolitan Cemeteries T/A Macquarie Park Cemetery
HSBC Custody Nominees (Australia) Limited
Questor Financial Services Limited
Pershing Australia Nominees Pty Ltd
National Nominees Limited
JP Morgan Nominees Australia Limited
Netwealth Investments Limited
Woronora General Cemetery & Crematorium
Vesade Pty Ltd
Sandhurst Trustees Ltd
Sandhurst Trustees Ltd
G E Mallan Investments Pty Ltd
Baptist Financial Services Australia Limited
Hampton Pty Ltd
John E Gill Trading Pty Ltd
Marento Pty Ltd
Noilly Pty Ltd
Randlewood Pty Ltd
Names of the 20 largest holders of Bendigo and Adelaide Step
Up Preference shares, including the number of shares each
holds and the percentage of step up preference share capital
that number represents as at 15 August 2013 are:
103,117
56,359
40,000
39,093
33,110
24,456
22,053
20,568
15,660
15,000
15,000
14,984
12,008
10,300
10,000
10,000
10,000
10,000
10,000
10,000
481,708
3.84%
2.10%
1.49%
1.45%
1.23%
0.91%
0.82%
0.76%
0.58%
0.56%
0.56%
0.45%
0.38%
0.37%
0.37%
0.37%
0.37%
0.37%
0.37%
0.37%
17.91%
Rank
Name
Number of fully paid
Step Up Preference Shares
Percentage held of Issued
Step Up Preference Shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
National Nominees Limited
JP Morgan Nominees Australia Limited
UBS Wealth Management Australia Nominees Pty Ltd
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Post Perfect Pty Ltd
Returned Services League of Australia (Queensland Branch)
UBS Nominees Pty Ltd
Aust Executor Trustees Ltd
Invia Custodian Pty Limited
Sandhurst Trustees Ltd
HSBC Custody Nominees (Australia) Limited
Carbon Max Pty Ltd
Questor Financial Services Limited
Escor Investments Pty Ltd
BNP Paribas Noms Pty Ltd
Ballabradach Pty Ltd
Tank Lord Pty Ltd
Rogand Pty Ltd
Baker Custodian Corporation
62,440
22,334
17,907
16,752
13,814
10,800
10,000
7,043
6,559
6,340
6,133
6,068
5,458
5,196
5,085
5,000
4,474
4,401
4,220
3,893
6.24%
2.23%
1.79%
1.68%
1.38%
1.08%
1.00%
0.70%
0.66%
0.63%
0.61%
0.61%
0.55%
0.52%
0.51%
0.50%
0.45%
0.44%
0.42%
0.39%
170
223,917
22.39%
9. Voting rights
The holders of ordinary shares are entitled to vote at meetings
of shareholders in the first instance by a show of hands of the
shareholders present and entitled to vote. If a poll is called,
each shareholder has one vote for each fully paid share held.
Holders of partly paid shares have a vote which carries the
same proportionate value as the proportion that the amount
paid up on the total issue price bears to the total issue price
of the share.
In the case of an equality of votes the Chairman has, on
both a show of hands and at a poll, a casting vote in addition
to the vote to which the Chairman may be entitled as a
shareholder, proxy, attorney or duly appointed representative
of a shareholder.
Bendigo and Adelaide Bank Limited
ABN 11 068 049 178